UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________ 
FORM 10-K
________________________________________  
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-50404
________________________________________ 
LKQ CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________ 
Delaware
 
36-4215970
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
500 West Madison Street,
Suite 2800, Chicago, IL
 
60661
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (312) 621-1950
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of each exchange on which registered
Common Stock, par value $.01 per share
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes   ¨     No   x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨   (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
As of June 30, 2016 , the aggregate market value of common stock outstanding held by stockholders who were not affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was approximately $9.6 billion (based on the closing sale price on the NASDAQ Global Select Market on such date). The number of outstanding shares of the registrant's common stock as of February 17, 2017 was 308,000,350 .
Documents Incorporated by Reference
Those sections or portions of the registrant's proxy statement for the Annual Meeting of Stockholders to be held on May 8, 2017 , described in Part III hereof, are incorporated by reference in this report.


 

PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Statements and information in this Annual Report on Form 10-K that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act.
Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies.  Words such as "may," "will," "plan," "should," "expect," "anticipate," "believe," "if," "estimate," "intend," "project" and similar words or expressions are used to identify these forward-looking statements.  These statements are subject to a number of risks, uncertainties, assumptions and other factors including those identified below.  All forward-looking statements are based on information available to us at the time the statements are made.  We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should not place undue reliance on our forward-looking statements.  Actual events or results may differ materially from those expressed or implied in the forward-looking statements.  The risks and uncertainties that could cause actual results to differ from the results predicted or implied by our forward-looking statements include the following (not necessarily in the order of importance):
•
changes in economic and political activity in the U.S. and other countries in which we are located or do business, including the U.K. withdrawal from the European Union, and the impact of these changes on our businesses, the demand for our products and our ability to obtain financing for operations;
•
increasing competition in the automotive parts industry;
•
fluctuations in the pricing of new original equipment manufacturer (“OEM”) replacement products;
•
changes in the level of acceptance and promotion of alternative automotive parts by insurance companies and auto repairers;
•
changes to our business relationships with insurance companies or changes by insurance companies to their business practices relating to the use of our products;
•
our ability to identify sufficient acquisition candidates at reasonable prices to maintain our growth objectives;
•
our ability to integrate, realize expected synergies, and successfully operate acquired companies and any companies acquired in the future, and the risks associated with these companies;
•
the implementation of a border tax or tariff on imports and the negative impact on our business due to the amount of inventory we import;
•
restrictions or prohibitions on selling certain aftermarket products to the extent OEMs seek and obtain more design patents than they have in the past and are successful in asserting infringement of these patents and defending their validity;
•
variations in the number of vehicles manufactured and sold, vehicle accident rates, miles driven, and the age profile of vehicles in accidents;
•
fluctuations in the prices of fuel, scrap metal and other commodities;
•
changes in laws or regulations affecting our business;
•
higher costs and the resulting potential inability to service our customers to the extent that our suppliers decide to discontinue business relationships with us;
•
price increases, interruptions or disruptions to the supply of vehicles or vehicle parts from aftermarket suppliers and from salvage auctions;
•
changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns;
•
the risks associated with operating in foreign jurisdictions, including foreign laws and economic and political instabilities;
•
declines in the values of our assets;
•
additional unionization efforts, new collective bargaining agreements, and work stoppages;

2

•
our ability to develop and implement the operational and financial systems needed to manage our operations;
•
interruptions, outages or breaches of our operational systems, security systems, or infrastructure as a result of attacks on, or malfunctions of, our systems;
•
product liability claims by the end users of our products or claims by other parties who we have promised to indemnify for product liability matters;
•
costs associated with recalls of the products we sell;
•
inaccuracies in the data relating to our industry published by independent sources upon which we rely;
•
currency fluctuations in the U.S. dollar, pound sterling and euro versus other currencies;
•
our ability to obtain financing on acceptable terms to finance our growth; and
•
our ability to satisfy our debt obligations and to operate within the limitations imposed by financing arrangements.
Other matters set forth in this Annual Report may also cause our actual results to differ materially from our forward-looking statements, including the risk factors disclosed in Item 1A of this Annual Report.
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website (www.lkqcorp.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission.


3

ITEM 1.      BUSINESS
OVERVIEW
LKQ Corporation ("LKQ" or the "Company") is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. LKQ has operations in North America, Europe and Taiwan. LKQ offers its customers a broad range of replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational and performance vehicles.
Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by original equipment manufacturers ("OEMs"); new products produced by companies other than the OEMs, which are sometimes referred to as aftermarket products; recycled products obtained from salvage vehicles; used products that have been refurbished; and used products that have been remanufactured. Collectively, we refer to the four sources that are not new OEM products as alternative parts.
Specialty automotive and RV aftermarket accessories and equipment are purchased by consumers to improve the performance, functionality and appearance of their vehicles.
We are organized into five operating segments: Wholesale - North America; Europe; Specialty; Glass and Self Service. We aggregate our Wholesale - North America, Glass and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe, and Specialty. See Note 14, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for financial information by reportable segment and by geographic region.
HISTORY
LKQ was initially formed in 1998 through the combination of a number of wholesale recycled products businesses located in Florida, Michigan, Ohio and Wisconsin. We subsequently expanded through internal development and over 235 acquisitions of aftermarket, recycled, refurbished, and remanufactured product suppliers and manufacturers; self service retail businesses; specialty vehicle aftermarket equipment and accessories suppliers; and a distributor of automotive glass products. Our most significant acquisitions include:
•
2007 acquisition of Keystone Automotive Industries, Inc., which, at the time of acquisition, was the leading domestic distributor of aftermarket products, including collision replacement products, paint products, refurbished steel bumpers, bumper covers and alloy wheels.
•
2011 acquisition of Euro Car Parts Holdings Limited ("ECP"), a vehicle mechanical aftermarket parts distribution company operating in the United Kingdom. This acquisition allowed us to expand our operations into the European automotive aftermarket business.
•
2013 acquisition of Sator Beheer B.V. ("Sator"), a vehicle mechanical aftermarket parts distribution company based in the Netherlands, with operations in the Netherlands, Belgium and Northern France. This acquisition allowed us to further expand our geographic presence into continental Europe.
•
2014 acquisition of Keystone Automotive Holdings, Inc. (“Keystone Specialty”), which expanded our product offering and increased our addressable market to include specialty vehicle aftermarket equipment and accessories.
•
2016 acquisition of Rhiag-Inter Auto Parts Italia S.p.A. (“Rhiag”), a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain. This acquisition expanded LKQ’s geographic presence in continental Europe.
•
2016 acquisition of Pittsburgh Glass Works LLC (“PGW”), which performs wholesale and retail distribution services and automotive glass manufacturing. The acquisition expanded our addressable market in North America and globally. In December 2016, we reached an agreement to sell the glass manufacturing business of PGW; the transaction is expected to be completed in the first quarter of 2017. The continuing portion of PGW’s business related to wholesale and retail distribution services is included in our North America reportable segment as of December 31, 2016.
Further information regarding our recent acquisitions is included in Note 2, "Business Combinations" and information related to our discontinued operations is included in Note 3, “Discontinued Operations” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
STRATEGY
Our strategy is to build economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products, and by expanding into other product lines and businesses that may benefit from our operating strengths. We strive to offer our customers the most comprehensive, available and cost effective selection of

4

part solutions while building strong partnerships with our employees and the communities in which we operate. We believe a supply network with a broad inventory of quality alternative collision and mechanical repair products and specialty vehicle aftermarket products, high fulfillment rates, and superior customer service provides us with a competitive advantage. To execute our strategy, we are focused on the following key areas:
•
Extensive in-place network. We have invested significant capital to develop a network of alternative and specialty vehicle parts facilities across our operating segments. Additionally, our ability to move inventory throughout our distribution networks increases the availability of our products and also helps us to fill a higher percentage of our customers’ requests. In order to expand our distribution network, we will continue to seek to grow into new markets and to improve penetration through acquisitions. We will continue to seek opportunities to leverage the distribution network by delivering more parts through our existing network in our North America and Specialty operations. In our Europe segment, we are attempting to implement the same strategy as our North America operations to build a Pan-European distribution network.
•
Acquisitions. We have focused on growth through acquisitions both domestically and abroad. The primary objective of our acquisitions is to expand our presence to new or adjacent markets, to expand into other product lines and business that may benefit from our operating strengths, and to increase the size of our addressable market. When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provide a fit with our existing operations, and strong cash flows. After completing an acquisition, we focus on integrating the company with our existing business to provide additional value to the combined entity through cost savings and synergies, such as logistics cost synergies resulting from integration with our existing distribution network, administrative cost savings, shared procurement, and cross-selling opportunities.
•
Strong business relationships. We have developed business relationships with key constituents, including automobile insurance companies, suppliers and other industry participants in North America and Europe.
•
Broad product offering. The breadth and depth of our inventory across all of our operating segments reinforces LKQ’s ability to provide a “one-stop” solution for our customers’ alternative vehicle replacement, maintenance, and specialty vehicle product needs.
•
High fulfillment rates. We manage local inventory levels to improve delivery and maximize customer service. Improving local order fulfillment rates reduces transfer costs and delivery times, and improves customer satisfaction.
•
Technology driven business processes. We focus on technology development as a way to support our competitive advantage. We believe that we can more cost effectively leverage our data to make better business decisions than our smaller competitors.
NORTH AMERICA SEGMENT
Our North America segment is composed of wholesale operations, which consists of aftermarket and salvage operations, and self service retail operations. We are a leading provider of alternative vehicle collision replacement products and a leading provider of alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the U.S. and Canada.
Wholesale Operations
Inventory
Our wholesale automobile product operations in North America sell all five product types (aftermarket, recycled, remanufactured, refurbished and OEM parts) to professional collision and mechanical automobile repair businesses. Our principal aftermarket product types consist of those most frequently damaged in collisions, including bumper covers, automotive body panels, lights and automotive glass products such as windshields. Platinum Plus is our exclusive product line offered under the Keystone brand of aftermarket products. Certain of our products are certified by independent organizations such as the Certified Automotive Parts Association (“CAPA”) and NSF International (“NSF”). CAPA and NSF are associations that evaluate the quality of aftermarket collision replacement products compared to OEM collision replacement products. We also developed a product line called "Value Line" for more value conscious, often self-pay, consumers. Our salvage products include both mechanical and collision parts, including engines; transmissions; door assemblies; sheet metal products such as trunk lids, fenders and hoods; lights; and bumper assemblies.
The aftermarket products we distribute are purchased from independent manufacturers and distributors located primarily in the U.S., Taiwan, and China. In 2016, approximately 39% of our aftermarket purchases were made from our top four vendors, with our largest vendor providing approximately 16% of our annual inventory purchases. We believe we are one of the largest customers of each of these suppliers. Outside of this group, no other supplier provided more than 5% of our supply of aftermarket products in 2016. We purchased approximately 48% of our aftermarket products in 2016 directly from

5

manufacturers in Taiwan and other Asian countries. Approximately 50% of our aftermarket products were purchased from vendors located in the U.S. and Canada; however, we believe the majority of these products were manufactured in Taiwan, Mexico or other foreign countries.
We procure recycled products for our wholesale operations by acquiring total loss vehicles, typically sold at regional salvage auctions, and then dismantling and inventorying the parts. The availability and pricing of the salvage vehicles we procure for our wholesale recycled products operations may be impacted by a variety of factors, including the production level of new vehicles and the portion of damaged vehicles declared total losses. Our bidding specialists are equipped with a proprietary software application that allows our bidding specialist to compare the vehicles at the salvage auctions against our current inventory levels, historical demand, and recent average selling prices to arrive at an estimated maximum bid.
Within our wholesale operations, we focus our procurement on products that are in the most demand, based on a number of factors such as historical sales records of vehicles by model and year, customer requests, projections of future supply and demand trends. Because lead times may take 40 days or more on imported aftermarket products, sales volume and in-stock inventory are important factors in the procurement process.
In our aftermarket operations, we use a third party enterprise management system and other third party software packages to leverage the centralized data and information that a single system provides, such as a data warehouse to conduct enhanced analytics and reporting, an integrated budgeting system, an electronic data interchange tool, and E-commerce tools to enhance our online business-to-business initiatives - OrderKeystone.com and Keyless.
Our wholesale recycled product locations in North America operate an internally-developed, proprietary enterprise management system called LKQX. We believe that the use of a single system across all of our wholesale recycled product operations helps facilitate the sales process, allows for continued implementation of standard operating procedures, and yields improved training efficiency, employee transferability, access to our national inventory database, management reporting and data storage. The system also supports an electronic exchange process for identifying and locating parts at other select recyclers and facilitates brokered sales to fill customer orders for items not in stock.
Scrap and Other Materials
Our salvage operations generate scrap metal and other materials that we sell to metals recyclers. Vehicles that have been dismantled for recycled products and "crush only" end-of-life vehicles acquired from other companies are typically crushed using equipment on site. In other cases, we will hire mobile crushing equipment to crush the vehicles before they are transported to shredders and scrap metal processors. Damaged and unusable wheel cores are melted in our aluminum furnace and sold to consumers of aluminum ingot and sow for the production of various automotive products, including wheels. We also extract and sell the precious metals contained in certain of our recycled parts such as catalytic converters.
Customers
We sell our products to wholesale customers that include collision and mechanical repair shops and new and used car dealerships, as well as to retail customers. The majority of these customers tend to be individually-owned small businesses, although the number of independent and dealer-operated collision repair facilities has declined over the last decade, as regional or national multiple location operators have increased their geographic presence through acquisitions. Automobile insurance companies affect the demand for our collision products; while insurance companies do not pay for our products directly, they ultimately pay for the repair costs of insured vehicles in excess of any deductible amount. As a result, insurance companies often influence the types of products used in a repair. The use of our products provides a direct benefit to insurance companies by lowering the cost of repairs, decreasing the time required to return the repaired vehicle to the customer, and providing a replacement product that is of high quality and comparable performance to the part replaced.
Our sales personnel are encouraged to promote LKQ to customers as a “one-stop shop” by offering comparable options from our other product lines if the desired part isn’t in stock. To support these efforts, we have provided our sales staff with access to both recycled and aftermarket sales systems, and we have developed sales incentive programs that encourage cross selling throughout our wholesale operations.
To better serve our customers, a consolidated approach has been taken for the electronic sale of wholesale products in our North American Segment. A full suite of E-commerce services is available to approved partners that helps us improve order accuracy, reduce return rate and better fit our customer workflow. Using these services in coordination with our partners, products can be searched, priced and ordered without leaving the customers' own operating systems.
Distribution
We have a distribution network of warehouses and cross dock facilities, which allows us to develop and maintain our service levels with local repair shops while providing fulfillment rates that are made possible by our nationwide presence. Our delivery fleet utilizes a third party software provider to optimize delivery routes, and to track the progress of delivery vehicles throughout their runs. Our local presence allows us to provide daily deliveries as required by our customers, using drivers who

6

routinely deliver to the same customers. Our sales force and local delivery drivers develop and maintain critical personal relationships with the local repair shops that benefit from access to our wide selection of products, which we are able to offer as a result of our regional inventory network. We operate a delivery fleet of medium-sized trucks and smaller trucks and vans, which deliver multiple product types on the same delivery routes to help minimize distribution costs and improve customer service.
Competition
We consider all suppliers of vehicle collision and mechanical products to be competitors, including aftermarket suppliers, recycling businesses, refurbishing operations, parts remanufacturers, OEMs and internet-based suppliers. We compete with alternative parts distributors on the basis of our nationwide distribution system, our product lines and inventory availability, customer service, our relationships with insurance companies, and to a lesser extent, price; we compete with OEMs primarily on the basis of price and, to a lesser extent, on service and product quality. We do not consider retail chains that focus on the do-it-yourself market to be our direct competitors since many of our wholesale product sales are paid for by insurance companies rather than the end user.
Self Service Operations
Our self service retail operations, most of which operate under the name “LKQ Pick Your Part,” sell parts from end-of-life vehicles directly to consumers. In addition to revenue from the sale of parts, core, and scrap, we charge a nominal admission fee to access the property.
Inventory
We acquire inventory for our self service retail product operations from a variety of sources, including but not limited to towing companies, auctions, the general public, municipality sales, insurance carriers, and charitable organizations. We typically procure salvage vehicles that are more than seven model years old for our self service retail product operations; these vehicles are generally older and of lower quality than the salvage vehicles we purchase for our wholesale recycled product operations. Vehicles are delivered to our locations by the seller, or we arrange for transportation. Once on our property, minimal labor is required to process the vehicle other than removing the battery, fluids, refrigerants, catalytic converters and hazardous materials. The extracted fluids are stored in bulk and subsequently sold to recyclers; in the case of gasoline, the fuel retrieved is primarily used to power our delivery vehicles. Vehicles are then placed in the yard for customers to remove parts. In our self service business, availability of a specific part will depend on which vehicles are currently at the site and to what extent parts may have been previously sold. We usually keep a vehicle at our facility for 30 to 120 days, depending on the capacity of the yard and size of the market, before it is crushed and sold to scrap metal processors.
Scrap and Other Materials
Our self service operations generate scrap metal, alloys and other materials that we sell to recyclers. Vehicles that we no longer make available to the public and "crush only" vehicles acquired from other companies, including OEMs, are typically crushed using equipment on site.
Customers
The customers of our self service yards are frequently do-it-yourself mechanics, small independent repair shops servicing older vehicles, auto rebuilders, and resellers. The scrap from the vehicle hulks, when not processed by us, is sold to metals recyclers, with whom we may also compete when procuring salvage vehicles for our operations.
Competition
There are competitors operating self service businesses in all of the markets in which we operate. In some markets, there are numerous competitors, often operating in close proximity to our operations. We try to differentiate our business by the quality of the inventory and the size and cleanliness of the property.
EUROPE SEGMENT
As noted in the History section, the Europe segment was built on three key acquisitions: ECP (2011), Sator (2013) and Rhiag (2016). Our Rhiag acquisition provides a potential platform to capitalize on the large and fragmented aftermarket mechanical replacement parts market in Europe, and also complements our existing operations in the U.K. and the Benelux region given the significant overlap in suppliers and product mix, which allows for potential cost savings from the leveraging of our combined purchasing power. In 2014, we expanded our European segment to include wholesale recycling operations through our acquisition of a business with salvage and vehicle repair facilities in Sweden and Norway. In addition to expanding our geographic presence in Europe, we believe these acquisitions provide us with the opportunity to leverage our experience in operating salvage facilities in a new market and to expand our aftermarket operations to include these countries. In December 2016, we acquired an equity investment in Mekonomen AB ("Mekonomen"), the leading independent car parts and service

7

chain in the Nordic region of Europe. Mekonomen will remain independent of our existing European operations, but we plan to explore areas where the companies can work together in a mutually beneficial manner. We have acquired many smaller businesses within these regions and over time, we anticipate further integration of our European operations as we optimize purchasing, warehousing, cataloging, logistics and back-office functions.
Inventory
Our inventory is primarily composed of mechanical aftermarket parts for the repair of vehicles 3 to 15 years old. Our top selling products include brake pads; discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; and oil and automotive fluids. In addition to mechanical aftermarket parts, we also sell collision parts in our Europe operations. We believe the historically low alternative collision parts usage percentage in Europe provides an opportunity for us in this segment, particularly as insurance companies look to lower their costs.
In 2016, our top five suppliers represented 22% of our aftermarket inventory purchases, with each of our top two suppliers representing approximately 6% of our purchases. No other suppliers comprised a significant portion of our purchases during 2016. The aftermarket products we distribute are purchased from vendors located primarily in the U.K. and continental Europe. In 2016, we purchased 92% of our products from companies in Europe. The remaining 8% of our 2016 purchases were sourced from vendors located primarily in China or Taiwan, some of which also supply collision parts for our Wholesale - North America operations. In 2016, 57%, 29%, and 8% of our total inventory purchases were made in Euros, Pounds Sterling, and U.S Dollars, respectively.
Our aftermarket operations in the U.K. use a single integrated IT platform for our purchasing, branch stock, and finance activities, which are further supported by a national distribution center system to manage inventory movement. The IT system allows customers to identify the correct part for repairs, thereby improving customer satisfaction and reducing return rates. Our aftermarket operations in continental Europe use several IT systems, which are linked to transfer data between systems, to manage customer orders and inventory movement, and for financial reporting purposes. Certain of our IT systems can interface with our repair shop customers' respective IT systems, which enables them to identify the part required for the repair.
In our Scandinavia operations, we purchase severely damaged or totaled vehicles from insurance companies, which are transferred to our dismantling facilities or sold to other third party dismantlers.
Customers
We operate under both two-step (i.e. direct sales to customers) and three-step (i.e. sales to distributors who in turn sell to customers) distribution models in Europe. In our two-step operations, such as the UK and Czech Republic, we sell the majority of our products to commercial customers primarily consisting of professional repairers, including both independent mechanical repair shops and collision repair shops. In our three-step operations, such as Italy, Belgium and Switzerland, we sell products to wholesale distributors or jobbers. Historically, our distribution network in the Benelux Region operated under a three-step distribution model where the immediate customers were warehouse distributors. Since the second quarter of 2014, we have acquired a number of aftermarket parts distributors in the Netherlands, which has enabled us to transform the original distribution model in this region to a two-step distribution model. In addition to our sales to repair shops and wholesale distributors, we generate a portion of our revenue through sales to retail customers from ECP’s e-commerce platform and from counter sales at the branch locations.
Distribution
Our European operations employ a distribution model in which inventory is stored at regional distribution centers or hubs, with fast moving product stored at branch locations or at local warehouse distributors (for some of our Netherlands, Italy and Check Republic operations) for timely delivery to the repair shop customers. Product is moved through the distribution network on our vans or via common carrier. In our U.K. operations, we also sometimes employ a third party motorcycle fleet to deliver parts from our branch locations to nearby repair shop customers.
In the U.K., we have undertaken a major project to expand our distribution capabilities by building a new national distribution center in Tamworth, which is expected to be completed in 2018. Between now and completion, we will incur some duplicate operating and other start-up costs, which may be material, as a result of having multiple warehouses during the build out phase. 
Competition
We view all suppliers of replacement repair products as our competitors, including other alternative parts suppliers and OEMs and their dealer networks. While we compete with all alternative parts suppliers, there are few with national distribution networks like ours that can reach the majority of repair shop customers within the required delivery time in their respective markets. We believe we have been able to distinguish ourselves from other alternative parts suppliers primarily through our distribution network, efficient stock management systems and proprietary technology which allows us to deliver our products

8

quickly, as well as through our product lines and inventory availability, pricing, and service. We compete with OEMs primarily on the basis of price, service and availability.
SPECIALTY SEGMENT
Our Specialty operating segment was formed in 2014 with our acquisition of Keystone Specialty, a leading distributor and marketer of specialty vehicle aftermarket products and accessories in North America. Our Specialty operations reach most major markets in the U.S. and Canada and serve the following six product segments: truck and off-road; speed and performance; RV; towing; wheels, tires and performance handling; and miscellaneous accessories.
Inventory     
The specialty vehicle aftermarket equipment and accessories we distribute are purchased from suppliers located primarily in the U.S., Canada, and China. Our top selling products are RV appliances & air conditioners, towing hitches, truck bed covers, vehicle protection products, cargo management products, and wheels, tires & suspension products. Specialty aftermarket suppliers are typically small to medium-sized, independent businesses that focus on a narrow product or market niche. Due to the highly fragmented supplier base for specialty vehicle aftermarket products, we have limited supplier concentration. In 2016, approximately 24% of our specialty vehicle aftermarket purchases were made from our top five suppliers, with our largest vendor providing approximately 8% of our annual inventory purchases.
Our Specialty operations utilize an internally developed inventory management and order entry system that interfaces with third party software systems for accounting, transaction processing, data analytics, and reporting.
Customers
Overall, the specialty vehicle aftermarket parts and accessories market contains a fragmented customer base composed of RV and specialty automotive dealers, installers, jobbers, builders, parts chains, and mail-order businesses. Our customers are principally small, independent businesses. These customers depend on us to provide a broad range of products, rapid delivery, marketing support and technical assistance. In addition to traditional customers, in recent years we have increased sales to several large parts and accessory online retailers. Our Specialty segment also operates retail stores in northeast Pennsylvania.
We promote our products to customers through marketing programs, which include: catalogs, advertising, sponsorships and promotional activities; product level marketing and merchandising support; and online initiatives. Our national footprint allows us to stage trade shows across the U.S., which provide an opportunity to improve sales through the showcasing of new and innovative products from our vendors to our customers.
Online sales of our Specialty products take place through our ekeystone.com and viantp.com sites. These sites provide customers (i) the ability to match products with the make and model of car thus allowing the customer to order the right part, (ii) the product information (e.g. pictures, attributes) available for review and (iii) the convenience of searching inventory availability and ordering the product on the site. Additionally, the site can provide sales opportunities by suggesting other parts to purchase based on an inquiry submitted by the customer.
Distribution
Our Specialty segment operations employ a hub-and-spoke distribution model which enables us to transport products from our primary distribution centers to our non-inventory stocking cross docks, a majority of which are co-located with our North America wholesale operations and provide distribution points to key regional markets and synergies with our existing infrastructure. We believe this provides added value to our customers through a broader product offering and more efficient distribution process. We use our delivery routes to provide multi-day per week delivery and returns of our products directly to and from our customers in all 48 continental U.S. states and 9 Canadian provinces, and we ship globally to customers in other countries. Our delivery fleet utilizes a third party software provider to optimize delivery routes, and to track the progress of delivery vehicles throughout their runs.
Competition
Industry participants have a variety of supply choices. Vendors can deliver products to market via warehouse distributors and mail order catalog businesses, or directly to retailers and/or consumers. We view all suppliers of specialty vehicle aftermarket equipment and accessories as our competitors. While we compete with all specialty vehicle aftermarket parts suppliers, there are few with national distribution networks like LKQ’s that can reach the majority of customers within the optimum delivery time. We believe we have been able to distinguish ourselves from other specialty vehicle aftermarket parts and equipment suppliers primarily through our broad product selection, which encompasses both popular and hard-to-find products, our distribution network, and efficient inventory management systems, as well as through our service. We compete on the basis of product breadth and depth, rapid and dependable delivery, marketing initiatives, support services, and price.    

9

INTELLECTUAL PROPERTY
We own various trade names and trademarks as a result of past acquisitions. In addition to acquired trade names and trademarks, we also have technology-based intellectual property that has been both internally developed and obtained through license agreements. We do not believe that our business is materially dependent on any single or group of related trademarks, licenses or registrations, nor would the expiration of any particular intellectual property right or termination of any particular intellectual property license agreement materially affect our business.
EMPLOYEES
As of December 31, 2016, we employed approximately 42,500 persons, which includes approximately 3,000 persons employed by PGW's glass manufacturing business that we expect to sell in the first quarter of 2017. Of the approximately 39,500 employees of our continuing operations, approximately 20,500 were employed in North America and approximately 19,000 were employed outside of North America. Of our employees in North America associated with continuing operations, approximately 1,370 were represented by unions. Outside of North America, we have government-mandated collective bargaining agreements and union contracts in certain countries, particularly in Europe where many of our employees are represented by unions and/or works councils. We consider our employee relations to be good.
FACILITIES
Our continuing operations include 1,339 facilities, including 548 facilities in the U.S. and 791 facilities located in 20 other countries, most of which are leased. Many of our locations stock multiple product types or serve more than one function.
Our corporate headquarters are located at 500 West Madison Street, Chicago, Illinois 60661. We operate a field support center in Nashville, Tennessee that performs certain centralized functions for our North American operations, including accounting, procurement, and information systems support; in 2017, we announced our plans to expand the size of our field support center via construction of a new 100,000 square foot facility in Nashville. Our Specialty operations maintain primary procurement, accounting and finance functions in Exeter, Pennsylvania. Certain back-office support functions for our segments are performed in Bangalore, India. Our European operations maintain procurement, accounting, and finance functions in Wembley, outside of London, England and Tamworth, England; in Schiedam, the Netherlands; in Milan, Italy; and in Prague, Czech Republic. In addition to these offices, we have a 500,000 square foot national distribution center in Tamworth that houses inventory to supply the hubs and branches of our U.K. operations. We are in the process of constructing a second national distribution center in Tamworth; we expect the 750,000 square foot facility will be fully operational by 2018. Additionally, we operate an aftermarket parts warehouse in Taiwan to aggregate inventory for shipment to our locations in North America.
REGULATION
             Our operations and properties are subject to laws and regulations relating to the protection of the environment in the U.S. and the other countries in which we operate. See the risk factor “We are subject to environmental regulations and incur costs relating to environmental matters” in Part I, Item 1A of this Annual Report on Form 10-K for further information regarding the effects of environmental laws and regulations on us.
SEASONALITY
Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months, we tend to have higher demand for our vehicle replacement products because there are more weather related repairs. Our specialty vehicle operations typically generate greater revenue and earnings in the first half of the year, when vehicle owners tend to install this equipment. We expect our aftermarket glass operations to generate greater revenue and earnings in the second and third quarters, when the demand for glass replacements increases after the winter weather.

ITEM 1A.     RISK FACTORS
Our operating results and financial condition have been and could continue to be adversely affected by the economic and political conditions in the U.S. and elsewhere.
Changes in economic and political conditions in the U.S. and other countries in which we are located or do business could have a material effect on our company. Changes in such conditions have, in some periods, resulted in fewer miles driven, fewer accident claims, and a reduction of vehicle repairs, all of which could negatively affect our business. The number of new vehicles produced and sold by manufacturers affects our business. A decrease in the number of vehicles on the road results in a decrease in accidents requiring repairs. Moreover, we supply vehicle glass directly to vehicle manufacturers, and a decrease in the number of vehicles produced would result in a decrease in the demand for our glass products.

10

Our sales are also impacted by changes to the economic health of vehicle owners. The economic health of vehicle owners is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending.  Many of these factors are outside of our control. If any of these conditions worsen, our business, results of operations, financial condition and cash flows could be adversely affected.
In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to restructurings, bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service providers and financial institutions that are counterparties to our credit facilities and hedge transactions. These unfavorable events affecting our business partners could have an adverse effect on our business, results of operations, financial condition and cash flows.
We have a substantial business presence in Europe, including a significant presence in the United Kingdom. In June 2016, voters in the United Kingdom decided by referendum to withdraw from the European Union. The precise timing and impacts of this action on our businesses in the United Kingdom and other parts of Europe are unknown at this time. Since the vote, we have seen fluctuations in exchange rates leading to pricing pressures and unfavorable translation effects on our sterling denominated earnings. As the details of the United Kingdom’s withdrawal from the European Union are negotiated and implemented, our European businesses could be adversely affected as a result of further fluctuations in exchange rates, disruptions to access to markets by United Kingdom companies, interruptions of the movement of goods and services between countries, a decrease of economic activity in Europe, and political or social unrest.
We face intense competition from local, national, international, and internet-based vehicle products providers, and this competition could negatively affect our business.
The vehicle replacement products industry is highly competitive and is served by numerous suppliers of OEM, recycled, aftermarket, refurbished and remanufactured products. Within each of these categories of suppliers, there are local owner-operated companies, larger regional suppliers, national and international providers, and internet-based suppliers. Providers of vehicle replacement products that have traditionally sold only certain categories of such products may decide to expand their product offerings into other categories of vehicle replacement products, which may further increase competition. Some of our current and potential competitors may have more operational expertise; greater financial, technical, manufacturing, distribution, and other resources; longer operating histories; lower cost structures; and better relationships in the insurance and vehicle repair industries or with consumers, than we do. In certain regions of the U.S., local vehicle recycling companies have formed cooperative efforts to compete in the wholesale recycled products industry. Similarly in Europe, some local companies are part of cooperative efforts to compete in the aftermarket parts industry. As a result of these factors, our competitors may be able to provide products that we are unable to supply, provide their products at lower costs, or supply products to customers that we are unable to serve.
We believe that a majority of collision parts by dollar amount are supplied by OEMs, with the balance being supplied by distributors of alternative aftermarket, recycled, refurbished and remanufactured collision parts like us. The OEMs are therefore able to exert pricing pressure in the marketplace. We compete with the OEMs primarily on price and to a lesser extent on service and quality. From time to time, the OEMs have implemented programs seeking to increase their market share in the collision repair parts industry. For example, they have reduced prices on specific products to match the lower prices of alternative products and introduced other rebate programs that may disrupt our sales. The growth of these programs or the introduction of new ones could have a material adverse impact on our business.
We rely upon our customers and insurance companies to promote the usage of alternative parts.
Our success depends, in part, on the acceptance and promotion of alternative collision parts usage by automotive insurance companies. There can be no assurance that current levels of alternative parts usage will be maintained or will increase in the future. Alternative part usage in the U.S. has been relatively flat over the last three years. In addition, in some places we operate, alternative parts usage is relatively low.
We also rely on business relationships with insurance companies. These insurance companies encourage vehicle repair facilities to use products we provide. The business relationships include in some cases participation in aftermarket quality and service assurance programs that may result in a higher usage of our aftermarket products than would be the case without the programs. Our arrangements with these companies may be terminated by them at any time, including in connection with their own business concerns relating to the offering, availability, standards or operations of the aftermarket quality and service assurance programs. We rely on these relationships for sales to some collision repair shops, and a termination of these relationships may result in a loss of sales, which could adversely affect our results of operations.
In an Illinois lawsuit involving State Farm Mutual Automobile Insurance Company ("Avery v. State Farm"), a jury decided in October 1999 that State Farm breached certain insurance contracts with its policyholders by using non-OEM replacement products to repair damaged vehicles when use of such products did not restore the vehicle to its "pre-loss

11

condition." The jury found that State Farm misled its customers by not disclosing the use of non-OEM replacement products and the alleged inferiority of those products. The jury assessed damages against State Farm of $456 million, and the judge assessed an additional $730 million of disgorgement and punitive damages for violations of the Illinois Consumer Fraud Act. In April 2001, the Illinois Appellate Court upheld the verdict but reduced the damage award by $130 million because of duplicative damage awards. On August 18, 2005, the Illinois Supreme Court reversed the awards made by the circuit court and found, among other things, that the plaintiffs had failed to establish any breach of contract by State Farm. The U.S. Supreme Court declined to hear an appeal of this case. As a result of this case, some insurance companies reduced or eliminated their use of aftermarket products. Our financial results could be adversely affected if insurance companies modified or terminated the arrangements pursuant to which repair shops buy aftermarket or recycled products from us due to a fear of similar claims.
In addition, to the extent that the collision repair industry continues to consolidate, the buying power of collision repair shop customers may further increase, putting additional pressure on our financial returns.
We may not be able to successfully acquire new businesses or integrate acquisitions, which could cause our business to suffer.
We may not be able to successfully complete potential strategic acquisitions if we cannot reach agreement on acceptable terms, if we do not obtain antitrust or other regulatory approvals on applicable terms, or for other reasons. Moreover, we may not be able to identify a sufficient number of acquisition candidates at reasonable prices to maintain our growth objectives. Also, over time, we will likely seek to make acquisitions that are relatively larger as we grow. Larger acquisition candidates may attract additional competitive buyers, which could increase our cost or could cause us to lose such acquisitions.
If we buy a company or a division of a company, we may experience difficulty integrating that company's or division's personnel and operations, which could negatively affect our operating results. In addition:
•
the key personnel of the acquired company may decide not to work for us;
•
customers of the acquired company may decide not to purchase products from us;
•
suppliers of the acquired company may decide not to sell products to us;
•
we may experience business disruptions as a result of information technology systems conversions;
•
we may experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, and financial reporting;
•
we may be held liable for environmental, tax or other risks and liabilities as a result of our acquisitions, some of which we may not have discovered during our due diligence;
•
we may intentionally assume the liabilities of the companies we acquire, which could result in material adverse effects on our business;
•
our existing business may be disrupted or receive insufficient management attention;
•
we may not be able to realize the cost savings or other financial benefits we anticipated, either in the amount or in the time frame that we expect; and
•
we may incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve the imposition of restrictive covenants or be dilutive to our existing stockholders.
Claims by OEMs relating to aftermarket products could adversely affect our business.
OEMs and other manufacturers have attempted to use claims of intellectual property infringement against manufacturers and distributors of aftermarket products to restrict or eliminate the sale of aftermarket products that are the subject of the claims. The OEMs have brought such claims in federal court and with the U.S. International Trade Commission.
To the extent OEMs and other manufacturers are seeking and obtaining more design patents than they have in the past and are successful in asserting infringement of these patents and defending their validity, we could be restricted or prohibited from selling certain aftermarket products, which could have an adverse effect on our business. We will likely incur significant expenses investigating and defending intellectual property infringement claims. In addition, aftermarket products certifying organizations may revoke the certification of parts that are the subject of the claims. Lack of certification may negatively impact us because many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization.
In December 2005 and May 2008, Ford Global Technologies, LLC filed complaints with the International Trade Commission against us and others alleging that certain aftermarket products imported into the U.S. infringed on Ford design patents. The parties settled these matters in April 2009 pursuant to a patent license arrangement that is currently scheduled to expire in March 2020. In January 2014, Chrysler Group, LLC filed a complaint against us in the U.S. District Court in the

12

Eastern District of Michigan contending that certain aftermarket parts we sell infringe Chrysler design patents. The parties settled this matter in June 2014 pursuant to a patent license arrangement that expires in June 2019. In the event that these license arrangements, or other similar license arrangements with OEMs, are terminated or we are unable to agree upon renewal terms, we may be subject to costs and uncertainties of litigation as well as restrictions on our ability to sell aftermarket parts that replicate parts covered by design patents.
If the number of vehicles involved in accidents declines or the number of cars being repaired declines, our business could suffer.
Our business depends on vehicle accidents and mechanical failures for both the demand for repairs using our products and the supply of recycled, remanufactured and refurbished parts. To the extent that a relatively higher percentage of damaged vehicles are declared total losses, there will be less demand for our products to repair such vehicles. In addition, our business is impacted by factors which influence the number and/or severity of accidents and mechanical failures including, but not limited to, the number of vehicles on the road, the number of miles driven, the ages of drivers, the occurrence and severity of certain weather conditions, the congestion of traffic, drivers distracted by electronic equipment, the use of alcohol and drugs by drivers, the effectiveness of accident avoidance systems in new vehicles, the reliability of new OEM parts, and the condition of roadways. For example, an increase of the acceptance of the ride-sharing business model would reduce the number of vehicles on the road. Additionally, an increase in fuel prices may cause the number of vehicles on the road, the number of miles driven, and the need for mechanical repairs and maintenance to decline, as motorists seek alternative transportation options. Mild weather conditions, particularly during winter months, tend to result in a decrease in vehicle accidents. Moreover, a number of states and municipalities have adopted, or are considering adopting, legislation banning the use of handheld cellular telephones or other electronic devices while driving, and such restrictions could lead to a decline in accidents.
Systems designed to help drivers avoid accidents are becoming more prevalent and more technologically sophisticated. To the extent OEMs install or are mandated by law to install accident avoidance systems in their vehicles, the number and severity of accidents could decrease, which could have a material adverse effect on our business.
The average number of new vehicles sold annually has fluctuated from year-to-year.  Periods of decreased sales could result in a reduction in the number of vehicles on the road and consequently fewer vehicles involved in accidents or in need of mechanical repair or maintenance. Substantial further declines in automotive sales in the future could have a material adverse effect on our business, results of operations and/or financial condition. In addition, if vehicle population trends result in a disproportionately high number of older vehicles on the road, insurance companies may find it uneconomical to repair such vehicles or there could be less costly repairs. If vehicle population trends result in a disproportionately high number of newer vehicles on the road, the demand generally for mechanical repairs and maintenance would likely decline due to the newer, longer-lasting parts in the vehicle population and mechanical failures being covered by OEM warranties for the first years of a vehicle's life. Moreover, alternative collision and mechanical parts are less likely to be used on newer vehicles. Electric vehicles do not have traditional engines, our biggest selling product. Thus, an increase in electric vehicles as a percentage of vehicles sold will have a negative impact on our engine sales.
Fluctuations in the prices of metals and other commodities could adversely affect our financial results.
Our recycling operations generate scrap metal and other metals that we sell. After we dismantle a salvage vehicle for wholesale parts and after vehicles have been processed in our self service retail business, the remaining vehicle hulks are sold to scrap processors and other remaining metals are sold to processors and brokers of metals. In addition, we receive "crush only" vehicles from other companies, including OEMs, which we dismantle and which generate scrap metal and other metals. The prices of scrap and other metals have historically fluctuated, sometimes significantly, due to market factors. In addition, buyers may stop purchasing metals entirely due to excess supply. To the extent that the prices of metals decrease materially or buyers stop purchasing metals, our revenue from such sales will suffer and a write-down of our inventory value could be required. The cost of our wholesale recycled and our self service retail inventory purchases will change as a result of fluctuating scrap metal and other metals prices. In a period of falling metal prices, there can be no assurance that our inventory purchasing cost will decrease the same amount or at the same rate as the scrap metal and other metals prices decline, and there may be a delay between the scrap metal and other metals price reductions and any inventory cost reductions. The prices of steel, aluminum, and plastics are components of the cost to manufacture products for our aftermarket business. If the prices of commodities rise and result in higher costs to us for products we sell, we may not be able to pass these higher costs on to our customers.
Existing or new laws and regulations may prohibit, restrict or burden the sale of aftermarket, recycled, refurbished or remanufactured products.
Most states have passed laws that prohibit or limit the use of aftermarket products in collision repair work. These laws include requirements relating to consumer disclosure, vehicle owner’s consent regarding the use of aftermarket products in the repair process, and the requirement to have aftermarket products certified by an independent testing organization. Additional legislation of this kind may be introduced in the future. If additional laws prohibiting or restricting the use of aftermarket products are passed, it could have an adverse impact on our aftermarket products business.

13

Certain organizations test the quality and safety of vehicle replacement products. If these organizations decide not to test a particular vehicle product, or in the event that such organizations decide that a particular vehicle product does not meet applicable quality or safety standards, we may decide to discontinue sales of such product or insurance companies may decide to discontinue authorization of repairs using such product. Such events could adversely affect our business.
Some jurisdictions have enacted laws prohibiting or severely restricting the sale of certain recycled products that we provide, such as airbags. These and other jurisdictions could enact similar laws or could prohibit or severely restrict the sale of additional recycled products. The passage of legislation with prohibitions or restrictions that are more severe than current laws could have a material adverse impact on our business. Additionally, Congress could enact federal legislation restricting the use of aftermarket or recycled automotive products used in the course of vehicle repairs.
The Federal Trade Commission (FTC) has issued guides which regulate the use of certain terms such as “rebuilt” or “remanufactured” in connection with the sale of automotive parts. Restrictions on the products we are able to sell and on the marketing of such products could decrease our revenue and have an adverse effect on our business and operations.
In 1992, Congress enacted the Anti-Car Theft Act to deter trafficking in stolen vehicles. The purpose of the law is to implement an electronic system to track and monitor vehicle identification numbers and major automotive parts. In January 2009, the U.S. Department of Justice implemented the portion of the system to track and monitor vehicle identification numbers. The portion of the system that would track and monitor major automotive parts would require various entities, including automotive parts recyclers like us, to inspect salvage vehicles for the purpose of collecting the part number for any "covered major part." The Department of Justice has not promulgated rules on this portion of the system, and therefore there has been no progress on the implementation of the system to track and monitor major automotive parts. However, if this system is fully implemented, the requirement to collect the information would place substantial burdens on vehicle recyclers, including us, that otherwise would not normally exist. It would place similar burdens on repair shops, which may discourage the use by such shops of recycled products. There is no pending initiative to implement the parts registration from a law enforcement point of view. However, there is a risk that a heightened legislative concern over safety of parts might precipitate an effort to push for the implementation of such rules.
An adverse change in our relationships with our suppliers or auction companies or a disruption to our supply of inventory could increase our expenses and impede our ability to serve our customers.
Our business is dependent on a relatively small number of suppliers of aftermarket products, a large portion of which are sourced from Taiwan. We incur substantial freight costs to import parts from our suppliers, many of which are located in Asia. If the cost of freight rose, we might not be able to pass the cost increases on to our customers. Furthermore, although alternative suppliers exist for substantially all aftermarket products distributed by us, the loss of any one supplier could have a material adverse effect on us until alternative suppliers are located and have commenced providing products.  In addition, we are subject to disruptions from work stoppages and other labor disputes at port facilities through which we import our inventory.  Moreover, our operations are subject to the customary risks of doing business abroad, including, among other things, natural disasters, transportation costs and delays, political instability, currency fluctuations and the imposition of tariffs, import and export controls and other non-tariff barriers (including changes in the allocation of quotas), as well as the uncertainty regarding future relations between China, Japan and Taiwan. The current U.S. administration has discussed the implementation of a tariff on imports into the U.S., the imposition of which would likely have a negative impact on our business due to the amount of inventory we import.
Because a substantial volume of our sales involves products manufactured from sheet metal, we can be adversely impacted if sheet metal becomes unavailable or is only available at higher prices, which we may not be able to pass on to our customers. Additionally, as OEMs convert to raw materials other than steel, it may be more difficult or expensive to source aftermarket parts made with such materials and it may be more difficult for repair shops to work with such materials in the repair process.
Most of our salvage and a portion of our self service inventory is obtained from vehicles offered at salvage auctions operated by several companies that own auction facilities in numerous locations across the U.S. We do not typically have contracts with the auction companies. According to industry analysts, a small number of companies control a large percentage of the salvage auction market in the U.S. If an auction company prohibited us from participating in its auctions, began competing with us, or significantly raised its fees, our business could be adversely affected through higher costs or the resulting potential inability to service our customers. Moreover, we face competition in the purchase of vehicles from direct competitors, rebuilders, exporters and other bidders. To the extent that the number of bidders increases, it may have the effect of increasing our cost of goods sold for wholesale recycled products. Some states regulate bidders to help ensure that salvage vehicles are purchased for legal purposes by qualified buyers. Auction companies have been actively seeking to reduce, circumvent or eliminate these regulations, which would further increase the number of bidders.
In addition, there is a limited supply of salvage vehicles in the U.S. As we grow and our demand for salvage vehicles increases, the costs of these incremental vehicles could be higher. In some states, when a vehicle is deemed a total loss, a

14

salvage title is issued. Whether states issue salvage titles is important to the supply of inventory for the vehicle recycling industry because an increase in vehicles that qualify as salvage vehicles provides greater availability and typically lowers the price of such vehicles. Currently, these titling issues are a matter of state law. In 1992, the U.S. Congress commissioned an advisory committee to study problems relating to vehicle titling, registration, and salvage. Since then, legislation has been introduced seeking to establish national uniform requirements in this area, including a uniform definition of a salvage vehicle. The vehicle recycling industry will generally favor a uniform definition, since it will avoid inconsistencies across state lines, and will generally favor a definition that expands the number of damaged vehicles that qualify as salvage. However, certain interest groups, including repair shops and some insurance associations, may oppose this type of legislation. National legislation has not yet been enacted in this area, and there can be no assurance that such legislation will be enacted in the future.
We also acquire inventory directly from insurance companies, OEMs, and others. To the extent that these suppliers decide to discontinue these arrangements, our business could be adversely affected through higher costs or the resulting potential inability to service our customers.
Our annual and quarterly performance may fluctuate.
Our revenue, cost of goods sold, and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Future factors that may affect our operating results include, but are not limited to, those listed in the Special Note on Forward-Looking Statements in this Annual Report on Form 10-K. Accordingly, our results of operations may not be indicative of future performance. These fluctuations in our operating results may cause our results to fall below our published financial guidance and the expectations of public markets, which could cause our stock price or the value of our debt instruments to decline.
If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives.
Our future success depends in large part upon the leadership and performance of our executive management team and key employees at the operating level. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. If we lose the services of any of our key employees at the operating or regional level, we may not be able to replace them with similarly qualified personnel, which could harm our business.
We operate in foreign jurisdictions, which exposes us to foreign exchange and other risks.
We have operations in North America, Europe, Taiwan and China, and we may expand our operations in the countries in which we do business and into other countries. Our foreign operations expose us to additional risks associated with international business, which could have an adverse effect on our business, results of operations and/or financial condition, including import and export requirements and compliance with anti-corruption laws, such as the U.K. Bribery Act 2010 and the Foreign Corrupt Practices Act. We also incur costs in currencies other than our functional currencies in some of the countries in which we operate. We are thus subject to foreign exchange exposure to the extent that we operate in different currencies, as well as exposure to foreign tax and other foreign and domestic laws. In addition, certain countries in which we operate have a higher level of political instability and criminal activity relative to the U.S. that could affect our operations and the ability to maintain our supply of products.
If we determine that our goodwill or other intangible assets have become impaired, we may incur significant charges to our pre-tax income.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of acquisitions. Goodwill is reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of the acquired business. As of December 31, 2016, our total goodwill subject to future impairment testing was $3.1 billion . For further discussion of our annual impairment test, see "Goodwill Impairment" in the Critical Accounting Policies and Estimates section of Item 7 in this Annual Report on Form 10-K.
We amortize other intangible assets over the assigned useful lives, each of which is based upon the expected period to be benefited. We review other intangible assets for possible impairment whenever events or circumstances indicate that the carrying value may not be recoverable. In the event conditions change that affect our ability to realize the underlying cash flows associated with our intangible assets, we may record an impairment charge. As of December 31, 2016, the value of our other intangible assets, net of accumulated amortization, was $584 million .

15

Our business may be adversely affected by union activities and labor and employment laws.
Certain of our employees are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation. From time to time, there have been efforts to organize additional portions of our workforce and those efforts can be expected to continue. In addition, the U.S. Department of Labor or applicable foreign government agencies could adopt new regulations or interpret existing regulations that could make it significantly easier for unionization efforts to be successful. Also, we may in the future be subject to strikes or work stoppages, union and works council campaigns, and other labor disruptions and disputes. Additional unionization efforts, new collective bargaining agreements, and work stoppages could materially increase our costs and reduce revenue and could limit our flexibility in terms of work schedules, reductions in force and other operational matters.
We also are subject to federal and state laws and regulations, such as the Fair Labor Standards Act, that govern such matters as minimum wage, overtime and other working conditions. Some of these laws are technical in nature and could be subject to interpretation by government agencies different than our interpretations. Efforts to comply with existing laws, changes to such laws and newly-enacted laws may increase our labor costs. If we were found not to be in compliance with such laws, we could be subject to fines, penalties and liabilities to our employees or government agencies.
We rely on information technology and communication systems in critical areas of our operations and a disruption relating to such technology could harm our business.
Some of the information technology systems and communication systems we use for management of our facilities and our financial functions are leased from or operated by other companies, while others are owned by us. In the event that the providers of these systems terminate their relationships with us or if we suffer prolonged outages of these or our own systems for whatever reason, we could suffer disruptions to our operations.
In the event that we decide to switch providers or to implement upgrades or replacements to our own systems, we may also suffer disruptions to our business. We may be unsuccessful in the development of our own systems, and we may underestimate the costs and expenses of developing and implementing our own systems. Also, our revenue may be hampered during the period of implementing an alternative system, which period could extend longer than we anticipated.
We believe we have taken reasonable and appropriate steps to protect our information systems and personal information about our customers and employees; however, if we experience a significant data security breach, we could be exposed to damage to our reputation, additional costs, lost sales or possible regulatory action.  The regulatory environment related to information security and privacy is constantly changing, and compliance with those requirements could result in additional costs.  There is no guarantee that the procedures that we have implemented to protect against unauthorized access to our systems and personal data are adequate to safeguard against all security breaches, and such a breach could potentially have a negative impact on our results of operations and financial condition.
Business interruptions in our distribution centers or other facilities may affect our operations, the function of our computer systems, and/or the availability and distribution of merchandise, which may affect our business.
Weather, terrorist activities, war or other disasters, or the threat of any of them, may result in the closure of our distribution centers (“DC”s) or other facilities or may adversely affect our ability to deliver inventory through our system on a timely basis.  This may affect our ability to serve our customers, resulting in lost sales or a potential loss of customer loyalty.  Some of our merchandise is imported from other countries and these goods could become difficult or impossible to bring into the U.S. or into the other countries in which we operate, and we may not be able to obtain such merchandise from other sources at similar prices.  Such a disruption in revenue could potentially have a negative impact on our results of operations and financial condition. 
We are subject to environmental regulations and incur costs relating to environmental matters.
We are subject to various federal, state, and local environmental protection and health and safety laws and regulations governing, among other things: the emission and discharge of hazardous materials into the ground, air, or water; exposure to hazardous materials; and the generation, handling, storage, use, treatment, identification, transportation, and disposal of industrial by-products, waste water, storm water, and mercury and other hazardous materials. We are also required to obtain environmental permits from governmental authorities for certain of our operations. If we violate or fail to obtain or comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. We could also become liable if employees or other parties are improperly exposed to hazardous materials. We have an environmental management process designed to facilitate and support our compliance with these requirements. We cannot assure you, however, that we will at all times be in complete compliance with such requirements. 
We have made and will continue to make capital and other expenditures relating to environmental matters. Although we presently do not expect to incur any capital or other expenditures relating to environmental controls or other environmental matters in amounts that would be material to us, we may be required to make such expenditures in the future.

16

Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at, or migration to or from, our or our predecessors' past or present facilities and at independent waste disposal sites. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances. Many of our facilities are located on or near properties with a history of industrial use that may have involved hazardous materials. As a result, some of our properties may be contaminated. Some environmental laws hold current or previous owners or operators of real property liable for the costs of cleaning up contamination. These environmental laws also impose liability on any person who disposes of, treats, or arranges for the disposal or treatment of hazardous substances, regardless of whether the affected site is owned or operated by such person, and at times can impose liability on companies deemed under law to be a successor to such person. Third parties may also make claims against owners or operators of properties, or successors to such owners or operators, for personal injuries and property damage associated with releases of hazardous or toxic substances.
Contamination resulting from vehicle recycling processes can include soil and ground water contamination from the release, storage, transportation, or disposal of gasoline, motor oil, antifreeze, transmission fluid, chlorofluorocarbons ("CFCs") from air conditioners, other hazardous materials, or metals such as aluminum, cadmium, chromium, lead, and mercury. Contamination from the refurbishment of chrome plated bumpers can occur from the release of the plating material. Contamination can migrate on-site or off-site which can increase the risk, and the amount, of any potential liability.
When we identify a potential material environmental issue during our acquisition due diligence process, we analyze the risks, and, when appropriate, perform further environmental assessment to verify and quantify the extent of the potential contamination. Furthermore, where appropriate, we have established financial reserves for certain environmental matters. In the event we discover new information or if laws change, we may incur significant liabilities, which may exceed our reserves.
Environmental laws are complex, change frequently, and have tended to become more stringent over time. Our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, or financial condition.
We could be subject to product liability claims and involved in product recalls.
If customers of repair shops that purchase our products are injured or suffer property damage, we could be subject to product liability claims by such customers. The successful assertion of this type of claim could have an adverse effect on our business, results of operations or financial condition.  In addition, we may become involved in the recall of a product that is determined to be defective.  The expenses of a recall and the damage to our reputation could have an adverse effect on our business, results of operations or financial condition.
We have agreed to defend and indemnify in certain circumstances insurance companies and customers against claims and damages relating to product liability and product recalls. The existence of claims or damages for which we must defend and indemnify these parties could also negatively impact our business, results of operations or financial condition.
Governmental agencies may refuse to grant or renew our operating licenses and permits.
Our operating subsidiaries in our salvage, self-service, and refurbishing operations must obtain licenses and permits from state and local governments to conduct their operations. When we develop or acquire a new facility, we must seek the approval of state and local units of government. Governmental agencies may resist the establishment of a vehicle recycling or refurbishing facility in their communities. There can be no assurance that future approvals or transfers will be granted. In addition, there can be no assurance that we will be able to maintain and renew the licenses and permits our operating subsidiaries currently hold.
New regulations related to conflict-free minerals may force us to incur additional expenses and otherwise adversely impact our business .
In August 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted final rules regarding disclosure of the use of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) or adjoining countries. These new requirements impose significant burdens on U.S. public companies. Compliance with the rules requires substantial due diligence in an effort to determine whether products contain the conflict minerals.  The results of such due diligence efforts must be disclosed on an annual basis in a filing with the SEC.
Our supply chain is complex and we may incur significant costs to determine the source of any such minerals used in our products. We may also incur costs with respect to potential changes to products, processes or sources of supply as a consequence of our diligence activities. Further, the implementation of these rules and their effect on customer, supplier and/or consumer behavior could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering products free of conflict minerals in some circumstances, we cannot be sure that we will be able to obtain necessary products from such suppliers in sufficient quantities or at competitive prices. We may face

17

reputational challenges if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we implement. Accordingly, these rules could have a material adverse effect on our business, results of operations and/or financial condition.
If we experience problems with our fleet of trucks, our business could be harmed.
We use a fleet of trucks to deliver the majority of the products we sell. We are subject to the risks associated with providing trucking services, including inclement weather, disruptions in the transportation infrastructure, governmental regulation, availability and price of fuel, liabilities arising from accidents to the extent we are not covered by insurance, and insurance premium increases. In addition, our failure to deliver products in a timely and accurate manner could harm our reputation and brand, which could have a material adverse effect on our business.
Risks Relating to Our Common Stock and Financial Structure
The market price of our common stock may be volatile and could expose us to securities class action litigation.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions.  The market price for our common stock may also be affected by our ability to meet analysts’ expectations.  Failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies.  Downturns in the stock market may cause the price of our common stock to decline.  Additionally, the market price for our common stock has been in the past, and in the future may be, adversely affected by allegations made or reports issued by short sellers, analysts, activists or others regarding our business model, our management or our financial accounting.
Following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such companies.  If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could have an adverse effect on our business.
Delaware law, our charter documents and our loan documents may impede or discourage a takeover, which could affect the price of our stock.
The anti-takeover provisions of our certificate of incorporation and bylaws, our loan documents and Delaware law could, together or separately, impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our certificate of incorporation and bylaws have provisions that could discourage potential takeover attempts and make attempts by stockholders to change management more difficult. Our credit agreement provides that a change of control is an event of default. Our incorporation under Delaware law and these provisions could also impede an acquisition, takeover, or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the price of our common stock.
Future sales of our common stock or other securities may depress our stock price.
We and our stockholders may sell shares of common stock or other equity, debt or instruments which constitute an element of our debt and equity (collectively, "securities") in the future. We may also issue shares of common stock under our equity incentive plan or in connection with future acquisitions. We cannot predict the size of future issuances of securities or the effect, if any, that future issuances and sales of shares of our common stock or other securities will have on the price of our common stock. Sales of substantial amounts of common stock (including shares issued in connection with an acquisition), the issuance of additional debt securities, or the perception that such sales or issuances could occur, may cause the price of our common stock to fall.
We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition and our ability to obtain financing in the future and to react to changes in our business.
As of December 31, 2016, we had approximately $2.2 billion aggregate principal amount of secured debt outstanding and approximately $1.1 billion of availability under the Senior Secured Credit Facilities (without giving effect to approximately $72.7 million of letters of credit outstanding). In addition, we had approximately $1.1 billion aggregate principal amount of unsecured debt outstanding comprising $600 million aggregate principal amount of the 4.75% senior notes due 2023 (the "U.S. Notes") and €500 million ( $526 million ) aggregate principal amount of the senior notes due April 1, 2024 (the "Euro Notes," and together with the U.S. Notes, the "senior notes").
Our significant amount of debt and our debt service obligations could limit our ability to satisfy our obligations, limit our ability to operate our business and impair our competitive position.
 For example, our debt and our debt service obligations could:

18

•
increase our vulnerability to adverse economic and general industry conditions, including interest rate fluctuations, because a portion of our borrowings are and will continue to be at variable rates of interest;
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce the availability of our cash flow from operations to fund working capital, capital expenditures or other general corporate purposes;
•
limit our flexibility in planning for, or reacting to, changes in our business and industry;
•
place us at a disadvantage compared to competitors that may have proportionately less debt;
•
limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements; and
•
increase our cost of borrowing.
In addition, if we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the ability to service such debt would increase.
Our senior notes do not impose any limitations on our ability to incur additional debt or protect against certain other types of transactions.
Although we are subject to our senior secured credit facilities for so long as they remain in effect, the indenture governing the U.S. Notes and the indenture governing the Euro Notes do not restrict the future incurrence of unsecured indebtedness, guarantees or other obligations. The indentures contain certain limitations on our ability to incur liens on assets and engage in sale and leaseback transactions. However, these limitations are subject to important exceptions. In addition, the indentures do not contain many other restrictions, including certain restrictions contained in our senior secured credit facilities, including, without limitation, investments or prepaying subordinated indebtedness or engaging in transactions with our affiliates.
Our senior secured credit facilities will permit, subject to specified conditions and limitations, the incurrence of a significant amount of additional indebtedness. As of December 31, 2016, we would have been able to incur an additional $1.1 billion of indebtedness under our revolving credit facility (without giving effect to approximately $72.7 million of outstanding letters of credit). If we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the ability to service such debt would increase.
Our senior secured credit facilities impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.
Our senior secured credit facilities impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:
•
incur, assume or permit to exist additional indebtedness (including guarantees thereof);
•
pay dividends or certain other distributions on our capital stock or repurchase our capital stock or prepay subordinated indebtedness;
•
incur liens on assets;
•
make certain investments or other restricted payments;
•
engage in transactions with affiliates;
•
sell certain assets or merge or consolidate with or into other companies;
•
guarantee indebtedness; and
•
alter the business we conduct.
As a result of these covenants and restrictions, we will be limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants. The failure to comply with any of these covenants would cause a default under the credit agreement. A default, if not waived, could result in acceleration of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing were available, it may be on terms that are less attractive to us than our existing credit facilities or it may be on terms that are not acceptable to us.

19

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Any future refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations. Additionally, the senior secured credit facilities and the indentures that govern our senior notes limit the use of the proceeds from certain dispositions of our assets; as a result, our senior secured credit facilities and our senior notes may prevent us from using the proceeds from such dispositions to satisfy all of our debt service obligations.
In addition, we are a holding company and repayment of our indebtedness is dependent upon cash flow generated by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are borrowers or guarantors of the indebtedness, our subsidiaries do not have any obligation to pay amounts due on the indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries and, under certain circumstances, distributions from our subsidiaries may be subject to significant taxes that reduce the amount of such distributions available to us. In the event that we do not receive sufficient distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.
Our future capital needs may require that we seek to refinance our debt or obtain additional debt or equity financing, events that could have a negative effect on our business.
We may need to raise additional funds in the future to, among other things, refinance existing debt, fund our existing operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. From time to time, we may raise additional funds through public or private financing, strategic alliances, or other arrangements. Funds may not be available or available on terms acceptable to us as a result of different factors, including but not limited to turmoil in the credit markets that results in the tightening of credit conditions and current or future regulations applicable to the financial institutions from whom we seek financing. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject to higher borrowing costs and further limitations on our operations. If we refinance or restructure our debt, we may incur charges to write off the unamortized portion of deferred debt issuance costs from a previous financing, or we may incur charges related to hedge ineffectiveness from our interest rate swap obligations. In addition, there are restrictions in the indenture that governs the U.S. Notes on our ability to refinance such notes prior to 2018. There are also restrictions in the indenture that governs the Euro Notes on our ability to refinance such notes prior to 2024. If we fail to raise capital when needed, our business may be negatively affected.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly and could affect the value of our senior notes.
Certain borrowings under our senior secured credit facilities and the borrowing under our accounts receivable securitization facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. Moreover, changes in market interest rates could affect the trading value of the notes. Assuming all revolving loans were fully drawn and no interest rate swaps were in place, each one percentage point change in interest rates would result in a $32.8 million change in annual cash interest expense under our senior secured credit facilities and our accounts receivable securitization facility.
Repayment of our indebtedness, including our senior notes, is dependent on cash flow generated by our subsidiaries.
We are a holding company and repayment of our senior notes will be dependent upon cash flow generated by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of the notes, our subsidiaries do not have any obligation to pay amounts due on the notes or to make funds available

20

for that purpose. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indentures governing the notes limit the ability of our subsidiaries to restrict the payment of dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the notes.
A downgrade in our credit rating would impact our cost of capital and could impact the market value of our senior notes.
Credit ratings have an important effect on our cost of capital. Credit rating agencies rate our debt securities on factors that include, among other items, our results of operations, business decisions that we make, their view of the general outlook for our industry, and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading, or downgrading the current rating or placing us on a watch list for possible future downgrading. We believe our current credit ratings enhance our ability to borrow funds at favorable rates.  A downgrade in our current credit rating from a rating agency could adversely affect our cost of capital by causing us to pay a higher interest rate on borrowed funds under our credit facilities.  A downgrade could also adversely affect the market price and/or liquidity of our senior notes, preventing a holder from selling the notes at a favorable price, as well as adversely affect our ability to issue new notes in the future or incur other indebtedness upon favorable terms.  
  The right to receive payments on the senior notes is effectively junior to those lenders who have a security interest in our assets.
Our obligations under our senior notes and our guarantors’ obligations under their guarantees of the notes are unsecured, but our and each co-borrower’s obligations under our senior secured credit facilities and each guarantor’s obligations under their respective guarantees of the senior secured credit facilities are secured by a security interest in substantially all of our domestic tangible and intangible assets, including the stock of most of our wholly-owned United States subsidiaries and the stock of certain of our non-United States subsidiaries. If we are declared bankrupt or insolvent, or if we default under our senior secured credit facilities, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of our notes, even if an event of default exists under the applicable indenture governing the notes. Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under our notes, then that guarantor will be released from its guarantee of the notes automatically and immediately upon such sale. In any such event, because the notes are not secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which claims by holders of the notes could be satisfied or, if any assets remained, they might be insufficient to satisfy claims fully. As of December 31, 2016, we had approximately $2.2 billion aggregate principal amount of secured debt outstanding and approximately $1.1 billion of availability under the senior secured credit facilities (without giving effect to approximately $72.7 million of letters of credit outstanding).
United States federal and state statutes allow courts, under specific circumstances, to void the senior notes and the guarantees, subordinate claims in respect of the senior notes and the guarantees, and require holders of the senior notes to return payments received from us or the guarantors.
Our direct and indirect domestic subsidiaries that are obligors under the senior secured credit facilities guarantee the obligations under our senior notes. In addition, certain subsidiaries of the issuer of the Euro Notes guarantee the obligations under the Euro Notes. The issuance of our senior notes and the issuance of the guarantees by the guarantors may be subject to review under state and federal laws if a bankruptcy, liquidation or reorganization case or a lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some future date by, or on behalf of, our unpaid creditors or the unpaid creditors of a guarantor. Under the federal bankruptcy laws of the United States and comparable provisions of state fraudulent transfer laws, a court may avoid or otherwise decline to enforce the notes, or a guarantor’s guarantee, or may subordinate the notes, or such guarantee, to our or the applicable guarantor’s existing and future indebtedness. While the relevant laws may vary from jurisdiction to jurisdiction, a court might do so if it found that when indebtedness under the notes was issued, or when the applicable guarantor entered into its guarantee, or, in some jurisdictions, when payments became due under the notes, or such guarantee, the issuer or the applicable guarantor received less than reasonably equivalent value or fair consideration and:
•
was insolvent or rendered insolvent by reason of such incurrence;
•
was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
•
intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
A court would likely find that we or a guarantor did not receive reasonably equivalent value or fair consideration for the notes or such guarantee if we or such guarantor did not substantially benefit directly or indirectly from the issuance of the

21

notes. Thus, if the guarantees were legally challenged, any guarantee could be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of the guarantor, the obligations of the applicable guarantor were incurred for less than reasonably equivalent value or fair consideration. If a court were to void the issuance of the notes or any guarantee, a holder of the notes would no longer have any claim against us or the applicable guarantor. In the event of a finding that a fraudulent transfer or conveyance occurred, a holder of the notes may not receive any repayment on the notes. Further, the avoidance of the notes could result in an event of default with respect to our and our subsidiaries’ other debt, which could result in acceleration of that debt. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an issuer or a guarantor, as applicable, would be considered insolvent if:
•
the sum of its debts, including contingent liabilities, was greater than the fair value of its assets;
•
the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
•
it could not pay its debts as they become due.
A court might also void the notes, or a guarantee, without regard to the above factors, if the court found that the notes were incurred or issued or the applicable guarantor entered into its guarantee with actual intent to hinder, delay or defraud its creditors. We cannot give any assurance as to what standard a court would apply in determining whether we or the guarantors were solvent at the relevant time or that a court would agree with our conclusions in this regard, or, regardless of the standard that a court uses, that it would not determine that we or a guarantor were indeed insolvent on that date; that any payments to the holders of the notes (including under the guarantees) did not constitute preferences, fraudulent transfers or conveyances on other grounds; or that the issuance of the notes and the guarantees would not be subordinated to our or any guarantor’s other debt. In addition, any payment by us or a guarantor pursuant to the notes, or its guarantee, could be avoided and required to be returned to us or such guarantor or to a fund for the benefit of our or such guarantor’s creditors, and accordingly the court might direct holders of the notes to repay any amounts already received from us or such guarantor. Among other things, under U.S. bankruptcy law, any payment by us pursuant to the notes or by a guarantor under a guarantee made at a time we or such guarantor were found to be insolvent could be voided and required to be returned to us or such guarantor or to a fund for the benefit of our or such guarantor’s creditors if such payment is made to an insider within a one-year period prior to a bankruptcy filing or within 90 days for any outside party and such payment would give such insider or outsider party more than such party would have received in a distribution under the Bankruptcy Code in a hypothetical Chapter 7 case. Although each guarantee contains a “savings clause” intended to limit the subsidiary guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer, this provision may not be effective as a legal matter to protect any subsidiary guarantees from being avoided under fraudulent transfer law. In that regard, in Official Committee of Unsecured Creditors of TOUSA, Inc. v Citicorp North America, Inc ., the United States Bankruptcy Court in the Southern District of Florida held that a savings clause similar to the savings clause included in our indentures was unenforceable. As a result, the subsidiary guarantees were found to be fraudulent conveyances. The United States Court of Appeals for the Eleventh Circuit subsequently affirmed the liability findings of the Bankruptcy Court without ruling directly on the enforceability of savings clauses generally. If the decision of the bankruptcy court in TOUSA were followed by other courts, the risk that the guarantees would be deemed fraudulent conveyances would be significantly increased.
To the extent a court avoids the notes or any of the guarantees as fraudulent transfers or holds the notes or any of the guarantees unenforceable for any other reason, the holders of the notes would cease to have any direct claim against us or the applicable guarantor. If a court were to take this action, our or the applicable guarantor’s assets would be applied first to satisfy our or the applicable guarantor’s other liabilities, if any, and might not be applied to the payment of the notes. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any. In addition, the Euro Notes and the guarantees may be subject to avoidance under the laws of other foreign jurisdictions, including Italy and the Czech Republic, to the extent that we or any of the guarantors (as applicable) were to be the subject of an insolvency or related proceeding in such jurisdiction(s).
Not all of our subsidiaries have guaranteed our senior secured credit facilities or our senior notes, and the assets of our non-guarantor subsidiaries may not be available to make payments on such obligations.
Not all of our subsidiaries have guaranteed the senior secured credit facilities, our U.S. Notes or our Euro Notes. In the event that any non-guarantor subsidiary becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its indebtedness and its trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to the lenders under the senior secured credit facilities or the holders of the senior notes. Consequently, claims in respect of the senior secured credit facilities and the senior notes are structurally subordinated to all of the liabilities of our subsidiaries that are not guarantors of such instruments, including trade payables, and any claims of third party holders of preferred equity interests, if any, in our non-guarantor subsidiaries. For the year ended December 31,

22

2016, our subsidiaries that are not borrowers under or do not guarantee the senior secured credit facilities and our subsidiaries that do not guarantee the U.S. Notes represented approximately 38% and 27% of our total revenue and operating income, respectively. In addition, these non-guarantor subsidiaries represented approximately 46% and 34% of our total assets and total liabilities, respectively, as of December 31, 2016 (excluding, in each case, intercompany amounts). As of the same date, our subsidiaries that do not guarantee the senior secured credit facilities or the U.S. Notes had approximately $923.0 million of outstanding indebtedness (which includes $267.8 million of borrowings under our revolving credit facilities by foreign subsidiaries that are borrowers under the revolving credit facilities but that do not guarantee the U.S. Notes). The group of subsidiaries that does not guarantee the Euro Notes is similar to the group that does not guarantee the U.S. Notes, except that there are four additional subsidiaries that guarantee the Euro Notes.
We may not be able to repurchase the senior notes upon a change of control or pursuant to an asset sale offer.
Upon a change of control, as defined in the indentures governing the senior notes, the holders of the notes will have the right to require us to offer to purchase all of the notes then outstanding at a price equal to 101% of their principal amount plus accrued and unpaid interest. Such a change of control would also be an event of default under our senior secured credit facilities. In order to obtain sufficient funds to pay amounts due under the senior secured credit facilities and the purchase price of the outstanding senior notes, we expect that we would have to refinance our indebtedness. We cannot assure you that we would be able to refinance our indebtedness on reasonable terms, if at all. Our failure to offer to purchase all outstanding senior notes or to purchase all validly tendered senior notes would be an event of default under the indenture. Such an event of default may cause the acceleration of our other debt. Our other debt also may contain restrictions on repayment requirements with respect to specified events or transactions that constitute a change of control under the indenture.
The definition of change of control in the indentures governing the senior notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of senior notes to require us to repurchase its notes as a result of a sale of less than all our assets to another person may be uncertain.
In addition, in certain circumstances as specified in the indentures governing the senior notes, we will be required to commence an asset sale offer, as defined in the indenture, pursuant to which we will be obligated to purchase certain senior notes at a price equal to 100% of their principal amount plus accrued and unpaid interest with the proceeds we receive from certain asset sales. Our other debt may contain restrictions that would limit or prohibit us from completing any such asset sale offer. In particular, our senior secured credit facilities contain provisions that require us, upon the sale of certain assets, to apply all of the proceeds from such asset sale to the prepayment of amounts due under the senior secured credit facilities. The mandatory prepayment obligations under the senior secured credit facilities will be effectively senior to our obligations to make an asset sale offer with respect to the senior notes under the terms of the indentures. Our failure to purchase any such senior notes when required under the indenture would be an event of default under the indentures.
  Key terms of the senior notes will be suspended if the notes achieve investment grade ratings and no default or event of default has occurred and is continuing.
Many of the covenants in the indentures governing the senior notes will be suspended if the notes are rated investment grade by Standard & Poor’s and Moody’s provided at such time no default or event of default has occurred and is continuing, including those covenants that restrict, among other things, our ability to pay dividends, incur liens and to enter into certain other transactions. There can be no assurance that the senior notes will ever be rated investment grade. However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force (although provisions under our other debt, like the senior secured credit facilities, may continue to restrict us from engaging in these transactions), and the effects of any such transactions will be permitted to remain in place even if the senior notes are subsequently downgraded below investment grade.
The liquidity and market value of the senior notes may change due to a variety of factors.
The liquidity of any trading market in the senior notes, and the market price quoted for the senior notes, may be adversely affected by changes in the overall market for these types of securities, changes in interest rates, changes in our ratings, and changes in our financial performance or prospects or in the prospects for companies in our industries generally.
We rely on an accounts receivable securitization program for a portion of our liquidity.
We have an arrangement whereby we sell an interest in a portion of our accounts receivable to a special purpose vehicle and receive funding through the commercial paper market. This arrangement expires in November 2019.  In the event that the market for commercial paper were to close or otherwise become constrained, our cost of credit relative to this program could rise, or credit could be unavailable altogether.

23

Our credit ratings may not reflect all risks associated with an investment in our senior notes.
Credit rating agencies rate our debt securities on factors that include our results of operations, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. The rating agencies can upgrade or downgrade our current rating or place us on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading would likely increase our cost of financing, limit our access to the capital markets and have an adverse effect on the market price of our securities, including our senior notes.

ITEM 1B.     UNRESOLVED STAFF COMMENTS
None.

ITEM 2.     PROPERTIES
Our properties are described in Item 1 of this Annual Report on Form 10-K, and such description is incorporated by reference into this Item 2. Our properties are sufficient to meet our present needs, and we do not anticipate any difficulty in securing additional space to conduct operations or additional office space, as needed, on terms acceptable to us.

ITEM 3.     LEGAL PROCEEDINGS
The Office of the District Attorney of Harris County, Texas has been investigating a possible violation of the Texas Clean Water Act in connection with alleged discharges of petroleum products at two of our facilities in Texas. The resolution of this matter may involve a monetary payment to Harris County for the alleged violations at each location. The amount of each payment individually and the amount of the payments in the aggregate (if any) are expected to have a de minimis effect on our financial position, results of operations and cash flows.
In addition, we are from time to time subject to various claims and lawsuits incidental to our business. In the opinion of management, currently outstanding claims and suits will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable.


24

PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol "LKQ." At December 31, 2016 , there were 20 record holders of our common stock. The following table sets forth, for the periods indicated, the range of the high and low sales prices of shares of our common stock on NASDAQ.
 
High
 
Low
2016
 
 
 
Fourth Quarter
$
35.58

 
$
29.57

Third Quarter
$
36.35

 
$
31.18

Second Quarter
$
34.26

 
$
29.37

First Quarter
$
32.12

 
$
23.95

2015
 
 
 
Fourth Quarter
$
30.50

 
$
27.08

Third Quarter
$
32.25

 
$
26.67

Second Quarter
$
30.82

 
$
24.92

First Quarter
$
28.23

 
$
22.90

We have not paid any cash dividends on our common stock. We intend to continue to retain our earnings to finance our growth and for general corporate purposes. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our senior secured credit agreement and our senior notes indentures contain, and future financing agreements may contain, limitations on payment of cash dividends or other distributions of assets. Based on limitations in effect under our senior secured credit agreement and senior notes indentures, the maximum amount of dividends we could pay as of December 31, 2016 was approximately $1.0 billion. The limit on the payment of dividends is calculated using historical financial information and will change from period to period.
The following graph compares the percentage change in the cumulative total returns on our common stock, the Standard & Poor's 500 Stock Index ("S&P 500 Index") and the following group of peer companies (the "Peer Group"): Copart, Inc.; O'Reilly Automotive, Inc.; Genuine Parts Company; and Fastenal Co., for the period beginning on December 31, 2011 and ending on December 31, 2016 (which was the last day of our 2016 fiscal year). In May 2016, S&P Dow Jones added us to the S&P 500 Index. Accordingly, pursuant to Securities and Exchange Commission rules, we were required to change the broad equity market index in our graph from the NASDAQ Stock Market (U.S.) Index, which we used last year, to the S&P 500 Index. The stock price performance in the graph is not necessarily indicative of future stock price performance. The graph assumes that the value of an investment in each of the Company's common stock, the S&P 500 Index and the Peer Group was $100 on December 31, 2011 and that all dividends, where applicable, were reinvested.

25

Comparison of Cumulative Return
Among LKQ Corporation, the NASDAQ Stock Market (U.S.) Index and the Peer Group

LKQ-2016123_CHARTX51634.JPG
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
LKQ Corporation
$
100

 
$
140

 
$
219

 
$
187

 
$
197

 
$
204

S&P 500 Index
$
100

 
$
113

 
$
147

 
$
164

 
$
163

 
$
178

Peer Group
$
100

 
$
111

 
$
140

 
$
177

 
$
188

 
$
217


This stock performance information is "furnished" and shall not be deemed to be "soliciting material" or subject to Rule 14A, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by reference.
Information about our common stock that may be issued under our equity compensation plans as of December 31, 2016 included in Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by reference.

26

ITEM 6.     SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K and our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.
 
Year Ended December 31,
(in thousands, except per share data)
2016
 
2015
 
2014
 
2013
 
2012
 
(1)
 
(2)
 
(3)
 
(4)
 
(5)
Statements of Income Data:
 
 
 
 
 
 
 
 
 
Revenue
$
8,584,031

 
$
7,192,633

 
$
6,740,064

 
$
5,062,528

 
$
4,122,930

Cost of goods sold
5,232,328

 
4,359,104

 
4,088,151

 
2,987,126

 
2,398,790

Gross margin
3,351,703

 
2,833,529

 
2,651,913

 
2,075,402

 
1,724,140

Operating income
763,398

 
704,627

 
649,868

 
530,180

 
437,953

Other expense (income):
 
 
 
 
 
 
 
 
 
Interest expense
88,263

 
57,860

 
64,542

 
51,184

 
31,429

Other (income) expense, net
(2,146
)
 
(2,263
)
 
(2,562
)
 
3,169

 
(2,643
)
Income from continuing operations before provision for income taxes
677,281

 
649,030

 
587,888

 
475,827

 
409,167

Provision for income taxes
220,566

 
219,703

 
204,264

 
164,204

 
147,942

Equity in earnings (loss) of unconsolidated subsidiaries
(592
)
 
(6,104
)
 
(2,105
)
 
—

 
—

Income from continuing operations
456,123

 
423,223

 
381,519

 
311,623

 
261,225

Income from discontinued operations, net of tax
7,852

 
—

 
—

 
—

 
—

Net income
$
463,975

 
$
423,223

 
$
381,519

 
$
311,623

 
$
261,225

Basic earnings per share: (6)
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.49

 
$
1.39

 
$
1.26

 
$
1.04

 
$
0.88

Income from discontinued operations
0.03

 
—

 
—

 
—

 
—

Net income
$
1.51

 
$
1.39

 
$
1.26

 
$
1.04

 
$
0.88

Diluted earnings per share: (6)
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.47

 
$
1.38

 
$
1.25

 
$
1.02

 
$
0.87

Income from discontinued operations
0.03

 
—

 
—

 
—

 
—

Net income
$
1.50

 
$
1.38

 
$
1.25

 
$
1.02

 
$
0.87

Weighted average shares outstanding-basic
306,897

 
304,722

 
302,343

 
299,574

 
295,810

Weighted average shares outstanding-diluted
309,784

 
307,496

 
306,045

 
304,131

 
300,693


27

 
Year Ended December 31,
(in thousands)
2016
 
2015
 
2014
 
2013
 
2012
 
(1)
 
(2)
 
(3)
 
(4)
 
(5)
Other Financial Data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities (7)
$
635,014

 
$
544,282

 
$
388,711

 
$
446,404

 
$
221,927

Net cash used in investing activities
(1,709,928
)
 
(329,993
)
 
(920,994
)
 
(505,606
)
 
(352,534
)
Net cash (used in) provided by financing activities (7)
1,225,737

 
(238,537
)
 
501,189

 
147,593

 
141,335

Capital expenditures
207,074

 
170,490

 
140,950

 
90,186

 
88,255

Cash paid for acquisitions, net of cash acquired
1,349,339

 
160,517

 
775,921

 
408,384

 
265,336

Depreciation and amortization
206,086

 
128,192

 
125,437

 
86,463

 
70,165

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
8,303,199

 
$
5,647,837

 
$
5,475,739

 
$
4,438,058

 
$
3,664,503

Working capital (8)
2,045,273

 
1,588,742

 
1,491,169

 
1,062,926

 
843,689

Long-term obligations, including current portion
3,341,771

 
1,584,702

 
1,846,148

 
1,287,242

 
1,111,058

Stockholders' equity
3,442,949

 
3,114,682

 
2,720,657

 
2,350,745

 
1,964,094

(1)
Includes the results of operations of: (i) Rhiag, from its acquisition effective March 18, 2016; (ii) PGW, from its acquisition effective April 21, 2016; and (iii) 13 other businesses from their respective acquisition dates in 2016.
(2)
Includes the results of operations of 18 businesses from their respective acquisition dates in 2015.
(3)
Includes the results of operations of Keystone Specialty from its acquisition effective January 3, 2014 and 22 other businesses from their respective acquisition dates in 2014.
(4)
Includes the results of operations of Sator from its acquisition effective May 1, 2013 and 19 other businesses from their respective acquisition dates in 2013.
(5)
Includes the results of operations of 30 businesses from their respective acquisition dates in 2012. Our 2012 results include gains totaling $17.9 million , which are included in Cost of goods sold, resulting from lawsuit settlements with certain of our aftermarket product suppliers.
(6)
The sum of the individual earnings per share amounts may not equal the total due to rounding.
(7) Prior year balances have been updated to reflect the adjustments resulting from the retrospective adoption of ASU 2016-09 during 2016 as described in Recent Accounting Pronouncements within Note 4, "Summary of Significant Accounting Policies " in Part II, Item 8 of this Annual Report on Form 10-K. The adjustments to prior year amounts are reflected in the table below:
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
Net cash provided by operating activities
 
 
 
 
 
 
 
Prior to adoption of ASU 2016-09
$
529,837

 
$
370,897

 
$
428,056

 
$
206,190

Adjustment - adoption of ASU 2016-09
14,445

 
17,814

 
18,348

 
15,737

As adjusted
$
544,282

 
$
388,711

 
$
446,404

 
$
221,927

 
 
 
 
 
 
 
 
Net cash (used in) provided by financing activities
 
 
 
 
 
 
 
Prior to adoption of ASU 2016-09
$
(224,092
)
 
$
519,003

 
$
165,941

 
$
157,072

Adjustment - adoption of ASU 2016-09
(14,445
)
 
(17,814
)
 
(18,348
)
 
(15,737
)
As adjusted
$
(238,537
)
 
$
501,189

 
$
147,593

 
$
141,335

(8)    Working capital amounts exclude assets and liabilities of discontinued operations.


28


ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, specialty vehicle products and accessories, and automotive glass products.
Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by original equipment manufacturers ("OEMs"); new products produced by companies other than the OEMs, which are sometimes referred to as aftermarket products; recycled products obtained from salvage vehicles; used products that have been refurbished; and used products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products, recycled collision and mechanical products, refurbished collision products such as wheels, bumper covers and lights, and remanufactured engines. Collectively, we refer to these products as alternative parts because they are not new OEM products.
We are the nation’s largest provider of alternative vehicle collision replacement products and a leading provider of alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic and Switzerland. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S and Canada.
On April 21, 2016, we expanded our product offerings to include aftermarket automotive glass products through our acquisition of PGW. With our acquisition of PGW, we are a leading global distributor of automotive glass products reaching most major markets in North America.
We are organized into five operating segments: Wholesale – North America; Europe; Specialty; Glass and Self Service. We aggregate our Wholesale –North America, Glass and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty.
Our revenue, cost of goods sold, and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Factors that may affect our operating results include, but are not limited to, those listed in the Special Note on Forward-Looking Statements in Part I, Item 1 and Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.
Acquisitions and Investments
Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. We have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value. We target companies that are market leaders, will expand our geographic presence and enhance our ability to provide a wide array of automotive products to our customers through our distribution network.
On March 18, 2016, LKQ acquired Rhiag, a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland and Spain. This acquisition expanded LKQ's geographic presence in continental Europe, and we believe the acquisition will generate potential purchasing synergies.
On April 21, 2016, LKQ acquired PGW, a leading global distributor and manufacturer of automotive glass products. PGW’s business comprises wholesale and retail distribution services, automotive glass manufacturing, and retailer alliance partnerships. We have signed an agreement to divest the automotive glass manufacturing component of PGW, which we expect to close in the first quarter of 2017. Unless otherwise noted, the discussion related to PGW throughout Part II, Item 7 of this annual report on Form 10-K refers to the aftermarket glass distribution operations of PGW, which are included within continuing operations. See Note 3, "Discontinued Operations " in Item 8 of this annual report on Form 10-K for further information related to our discontinued operations. The acquisition of PGW's aftermarket glass distribution business expanded our addressable market in North America. Additionally, we believe the acquisition will create potential distribution synergies with our existing network.
In addition to our acquisitions of Rhiag and PGW, we acquired eight wholesale businesses in Europe, and five wholesale businesses in North America during the year ended December 31, 2016.

29


On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen AB ("Mekonomen"), the leading independent car parts and service chain in the Nordic region of Europe, offering a wide range of quality products including spare parts and accessories for cars, and workshop services for consumers and businesses. We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee.
During the year ended December 31, 2015, we completed 18 acquisitions, including  4 wholesale businesses in North America and  12  wholesale businesses in Europe, a self service retail operation, and a specialty vehicle aftermarket business. Our wholesale business acquisitions in North America included PartsChannel, Inc. (“Parts Channel”), an aftermarket collision parts distributor. The specialty aftermarket business acquired was The Coast Distribution System, Inc. (“Coast”), a supplier of replacement parts, supplies and accessories for the recreational vehicle ("RV") and outdoor recreation markets. Our European acquisitions included  11 aftermarket parts distribution businesses in the Netherlands,  9  of which were former customers of and distributors for our Netherlands subsidiary, Sator, and were acquired with the objective of expanding our distribution network in the Netherlands. Our other acquisitions completed in 2015 enabled us to expand our geographic presence.
On January 3, 2014, we completed our acquisition of Keystone Specialty. Keystone Specialty is a leading distributor and marketer of specialty vehicle aftermarket equipment and accessories in North America serving the following six product segments: truck and off-road; speed and performance; recreational vehicle; towing; wheels, tires and performance handling; and miscellaneous accessories. Our acquisition of Keystone Specialty allowed us to enter into new product lines and increase the size of our addressable market. In addition, the acquisition created logistics and administrative cost synergies and cross-selling opportunities.
In addition to our acquisition of Keystone Specialty, we made 22 acquisitions during 2014, including 9 wholesale businesses in North America, 9 wholesale businesses in Europe, 2 self service retail operations, and 2 specialty vehicle aftermarket businesses. Our European acquisitions included 7 aftermarket parts distribution businesses in the Netherlands, 5 of which were customers of and distributors for our Netherlands subsidiary, Sator. Our acquisitions in the Netherlands enabled us to transform the existing distribution model to better align with that of our U.K. operations. This realignment has allowed us to sell directly to the end repair shop customer instead of through a local wholesale distributor, and to improve margins, customer service, and fulfillment rates, and positioned us well to introduce additional product categories in the long term. Our other acquisitions completed during the year ended December 31, 2014 enabled us to expand into new product lines and enter new markets.
Sources of Revenue
We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products and related services including (i) aftermarket, other new and refurbished products and (ii) recycled, remanufactured and related products and services. Our service revenue is generated primarily from the sale of extended warranties, fees for admission to our self service yards, and processing fees related to the secure disposal of vehicles. For the year ended December 31, 2016 , parts and services revenue represented approximately 95% of our consolidated revenue.
The majority of our parts and services revenue is generated from the sale of vehicle replacement products to collision and mechanical repair shops. In North America, our vehicle replacement products include sheet metal crash parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; automotive glass products such as windshields; mirrors and grills; wheels; and large mechanical items such as engines and transmissions. In Europe, our products include a wide variety of small mechanical products such as filters, belts and hoses, spark plugs, alternators and water pumps, batteries, suspension and brake parts, clutches, and oil and lubricants. The demand for these products is influenced by several factors, including the number of vehicles in operation, the number of miles being driven, the frequency and severity of vehicle accidents, the age profile of vehicles in accidents, seasonal weather patterns and local weather conditions, and the availability and pricing of new OEM parts. With respect to collision related products, automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process. Accordingly, we consider automobile insurers to be key demand drivers of our vehicle replacement products. While they are not our direct customers, we do provide insurance carriers services in an effort to promote the increased usage of alternative replacement products in the repair process. Such services include the review of vehicle repair order estimates, direct quotation services to insurance company adjusters and an aftermarket parts quality and service assurance program. We neither charge a fee to the insurance carriers for these services nor adjust our pricing of products for our customers when we perform these services for insurance carriers. There is no standard price for many of our vehicle replacement products, but rather a pricing structure that varies from day to day based upon such factors as new OEM product prices, product availability, quality, demand, the age and mileage of the vehicle from which the part was obtained (in the case of recycled products), competitor pricing and our product cost.
Our revenue from aftermarket, other new and refurbished products also includes revenue generated from the sale of specialty aftermarket vehicle equipment and accessories. These products are primarily sold to a large customer base of specialty

30


vehicle retailers and equipment installers, including mostly independent, single-site operators. Specialty vehicle aftermarket products are typically installed on vehicles within the first year of ownership to enhance functionality, performance or aesthetics. As a result, the demand for these products is influenced by new and used vehicle sales and the overall economic health of vehicle owners, which may be affected by general business conditions, interest rates, inflation, consumer debt levels and other matters that influence consumer confidence and spending. The prices for our specialty vehicle products are based on manufacturers' suggested retail prices, with discounts applied based on prevailing market conditions, customer volumes and promotions that we may offer from time to time.
For the year ended December 31, 2016 , revenue from other sources represented approximately 5% of our consolidated sales. These other sources include scrap sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. We derive scrap metal from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from OEMs and other entities that contract with us for secure disposal of "crush only" vehicles. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold.
Cost of Goods Sold
Our cost of goods sold for aftermarket products includes the price we pay for the parts, freight, and overhead costs related to the purchasing, warehousing and distribution of our inventory, including labor, facility and equipment costs and depreciation. Our aftermarket products are acquired from a number of vendors. Our cost of goods sold for refurbished products includes the price we pay for cores, freight, and costs to refurbish the parts, including direct and indirect labor, facility and equipment costs, depreciation and other overhead related to our refurbishing operations.
Our cost of goods sold for recycled products includes the price we pay for the salvage vehicle and, where applicable, auction, towing and storage fees. Prices for salvage vehicles may be impacted by a variety of factors, including the number of buyers competing to purchase the vehicles, the demand and pricing trends for used vehicles, the number of vehicles designated as “total losses” by insurance companies, the production level of new vehicles (which provides the source from which salvage vehicles ultimately come), the age of vehicles at auction and the status of laws regulating bidders or exporters of salvage vehicles. From time to time, we may also adjust our buying strategy to target vehicles with different attributes (for example, age, level of damage, and revenue potential). Due to changes relating to these factors, we have seen the prices we pay for salvage vehicles fluctuate over time. Our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles. Our labor and labor-related costs related to acquisition and dismantling generally account for between 9% and 13% of our cost of goods sold for vehicles we dismantle. The acquisition and dismantling of salvage vehicles is a manual process and, as a result, energy costs are not material.
Our cost of goods sold for remanufactured products includes the price we pay for cores; freight; and costs to remanufacture the products, including direct and indirect labor, facility and equipment costs, depreciation and other overhead related to our remanufacturing operations.
Some of our salvage mechanical products are sold with a standard six-month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three-year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products. We record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty claims activity and related expenses.
Other revenue is primarily generated from the hulks and unusable parts of the vehicles we acquire for our wholesale and self service recycled product operations, and therefore, the costs of these sales include the proportionate share of the price we pay for the salvage vehicles as well as the applicable auction, storage and towing fees and internal costs to purchase and dismantle the vehicles. Our cost of goods sold for other revenue will fluctuate based on the prices paid for salvage vehicles, which may be impacted by a variety of factors as discussed above.
Expenses
Our facility and warehouse expenses primarily include our costs to operate our aftermarket warehouses, salvage yards and self service retail facilities. These costs include personnel expenses such as wages, incentive compensation and employee benefits for plant management and facility and warehouse personnel, as well as rent for our facilities and related utilities, property taxes, repairs and maintenance. The costs included in facility and warehouse expenses do not relate to inventory processing or conversion activities and, as such, are classified below the gross margin line on our Consolidated Statements of Income.
Our distribution expenses primarily include our costs to prepare and deliver our products to our customers. Included in our distribution expense category are personnel costs such as wages, employee benefits and incentive compensation for drivers;

31


third party freight costs; fuel; and expenses related to our delivery and transfer trucks, including vehicle leases, repairs and maintenance, and insurance.
Our selling and marketing expenses primarily include salary, commission and other incentive compensation expenses for sales personnel; advertising, promotion and marketing costs; credit card fees; telephone and other communication expenses; and bad debt expense. Personnel costs generally account for between 75% and 80% of our selling and marketing expenses. Most of our sales personnel are paid on a commission basis. The number and quality of our sales force is critical to our ability to respond to our customers’ needs and increase our sales volume. Our objective is to continually evaluate our sales force, develop and implement training programs, and utilize appropriate measurements to assess our selling effectiveness.
Our general and administrative expenses primarily include the costs of our corporate offices and field support center, which provide management, treasury, accounting, legal, payroll, business development, human resources and information systems functions. General and administrative expenses include wages, benefits, stock-based compensation and other incentive compensation for corporate, regional and administrative personnel; information systems support and maintenance expenses; and accounting, legal and other professional fees.
Seasonality
Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months, we tend to have higher demand for our vehicle replacement products because there are more weather related repairs. Our specialty vehicle operations typically generate greater revenue and earnings in the first half of the year, when vehicle owners tend to install this equipment. We expect our aftermarket glass operations to generate greater revenue and earnings in the second and third quarters, when the demand for glass replacements increases after the winter weather.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, assumptions, and judgments, including those related to revenue recognition, inventory valuation, business combinations and goodwill impairment. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue. Actual results may differ from these estimates.
Revenue Recognition
We recognize and report revenue from the sale of vehicle products when they are shipped to or picked up by the customers and title has transferred, subject to an allowance for estimated returns, discounts and allowances that management estimates based upon historical information. In instances where a product is returned by a customer, the product would ordinarily be returned within a few days of shipment. Our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment. Allowances are normally given within a few days following product shipment. We analyze historical returns and allowances activity by comparing the items to the original invoice amounts and dates. We use this information to project future returns and allowances on products sold. If actual returns and allowances are higher than our historical experience, there would be an adverse impact on our operating results in the period of occurrence.
We recognize revenue from the sale of scrap metal, other metals, and cores when title has transferred, which typically occurs upon delivery to the customer.
Inventory Accounting
Salvage and Remanufactured Inventory . Our salvage inventory cost is established based upon the price we pay for a vehicle, including auction, towing and storage fees, as well as expenditures for buying and dismantling vehicles. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight, direct manufacturing costs and overhead related to our remanufacturing operations.

32


For all inventory, carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
Business Combinations
We record our acquisitions using the acquisition method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. We utilize management estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.
Goodwill Impairment
We are required to test our goodwill for impairment at least annually. When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value. If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.
We perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist. During 2016 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts. Therefore, we did not perform any impairment tests other than our annual test in the fourth quarter of 2016 . As of the date of our annual goodwill impairment test, we were organized into five operating segments: Wholesale - North America; Europe; Specialty; Glass; and Self Service. Our Glass operating segment was composed of two reporting units, the aftermarket business and the glass manufacturing business; however, goodwill was recorded only in the aftermarket reporting unit. The other four operating segments were single reporting units for purposes of goodwill testing in 2016 .
Our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value. The fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. We believe that using two methods to determine fair value limits the chances of an unrepresentative valuation. As of December 31, 2016 , we had a total of $3.1 billion in goodwill subject to future impairment tests. We determined that no adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2016 on all five reporting units. We noted that the proximity of the PGW acquisition to the goodwill testing date resulted in a fair value estimate for the Glass aftermarket reporting unit which exceeded the carrying value by less than 10%. This result aligns with our expectations as there has not been a significant change in the value of the business since the acquisition date while we continue to execute our integration plans. No other reporting unit had a fair value estimate which exceeded the carrying value by less than 25%. If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating results.
Recently Issued Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 4, "Summary of Significant Accounting Policies " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to new accounting standards.
Financial Information by Geographic Area
See Note 14, "Segment and Geographic Information " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our revenue and long-lived assets by geographic region.

33


Results of Operations—Consolidated
In the "Results of Operations - Consolidated" and "Results of Operations - Segment Reporting" sections below, we discuss the impact of PGW on our consolidated and segment results for the year ended December 31, 2016. Unless otherwise noted, the discussion related to PGW refers only to the aftermarket glass distribution operations of PGW, which are included within continuing operations.
The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of goods sold
61.0
 %
 
60.6
 %
 
60.7
 %
Gross margin
39.0
 %
 
39.4
 %
 
39.3
 %
Facility and warehouse expenses
8.0
 %
 
7.7
 %
 
7.8
 %
Distribution expenses
8.0
 %
 
8.4
 %
 
8.6
 %
Selling, general and administrative expenses
11.5
 %
 
11.5
 %
 
11.3
 %
Restructuring and acquisition related expenses
0.4
 %
 
0.3
 %
 
0.2
 %
Depreciation and amortization
2.2
 %
 
1.7
 %
 
1.8
 %
Operating income
8.9
 %
 
9.8
 %
 
9.6
 %
Other expense, net
1.0
 %
 
0.8
 %
 
0.9
 %
Income from continuing operations before provision for income taxes
7.9
 %
 
9.0
 %
 
8.7
 %
Provision for income taxes
2.6
 %
 
3.1
 %
 
3.0
 %
Equity in earnings (loss) of unconsolidated subsidiaries
(0.0
 )%
 
(0.1
)%
 
(0.0
 )%
Income from continuing operations
5.3
 %
 
5.9
 %
 
5.7
 %
Income from discontinued operations
0.1
 %
 
—
 %
 
—
 %
Net income
5.4
 %
 
5.9
 %
 
5.7
 %
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenue. The following table summarizes the changes in revenue by category (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
 
2016
 
2015
 
Organic
 
Acquisition
 
Foreign Exchange
 
Total Change
Parts & services revenue
$
8,144,645

 
$
6,713,951

 
4.8
 %
 
19.0
%
 
(2.5
)%
 
21.3
 %
Other revenue
439,386

 
478,682

 
(11.2
)%
 
3.1
%
 
(0.2
)%
 
(8.2
)%
Total revenue
$
8,584,031

 
$
7,192,633

 
3.7
 %
 
18.0
%
 
(2.4
)%
 
19.3
 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
The change in parts and services revenue of 21.3% represents increases in segment revenue of 9.9% in North America, 46.4% in Europe and 13.5% in Specialty. The decrease in other revenue of 8.2% primarily consisted of a $53.4 million organic decline partially offset by $15.0 million of acquisition related growth. Refer to the discussion of our segment results of operations for factors contributing to revenue change during 2016 compared to the prior year.
Cost of Goods Sold . Our cost of goods sold increased to 61.0% of revenue in 2016 from 60.6% of revenue in 2015. The increase in cost of goods sold reflects a negative effect of 0.6% from our Rhiag acquisition, which has lower gross margins than our prior year consolidated gross margin. In addition, our cost of goods sold increased 0.2% as a result of mix, as we generated a greater proportion of our revenue in our Specialty operations, which has lower gross margins than our prior year consolidated gross margin. These negative impacts were partially offset by lower cost of goods sold as a percentage of revenue of 0.5% primarily related to our self service and wholesale operations in our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 2016 compared to the prior year.
Facility and Warehouse Expenses . As a percentage of revenue, facility and warehouse expenses for the year ended December 31, 2016 increased to 8.0% from 7.7% in the prior year. The change in facility and warehouse expense reflects (i) a

34


0.3% increase as a percentage of revenue in our North America operations related to a realignment of plant manager responsibilities, which shifted these expenses from selling, general and administrative expenses to facility and warehouse expenses and (ii) a 0.2% increase as a percentage of revenue in our Europe operations for branch openings and the addition of facility costs for the partly operational Tamworth, England distribution center. These negative impacts were partially offset by a decrease of 0.3% from our acquisition of Rhiag, which has lower facility and warehouse expenses as a percentage of revenue than our prior year consolidated facility and warehouse expenses.
Distribution Expenses. As a percentage of revenue, distribution expenses decreased to 8.0% in 2016 from 8.4% in 2015. The decrease in distribution expense reflects a positive impact of 0.4% from our Rhiag acquisition, which has lower distribution expenses as a percentage of revenue than our prior year consolidated distribution expenses.
Selling, General and Administrative Expenses. Our selling, general and administrative ("SG&A") expenses for the year ended December 31, 2016 remained flat compared to the prior year at 11.5% of revenue. SG&A increased 0.2% as a result of our Rhiag acquisition, which has higher SG&A than our prior year consolidated SG&A. Offsetting this increase was a 0.2% favorable impact from our Specialty operations as a result of a decline in personnel costs from the realization of integration synergies, a decrease in bad debt expense and other individually insignificant decreases across various SG&A categories. Within our North America segment, SG&A personnel expenses were flat as a percentage of revenue, as the decrease in expense as a percentage of revenue related to the realignment of plant manager responsibilities discussed above was offset by increases in other personnel expenses as a percentage of revenue.
Restructuring and Acquisition Related Expenses . The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):
 
Year Ended December 31,
 
 
 
2016
 
2015
 
Change
Restructuring expenses
$
15,782

(1)  
$
13,083

(1)  
$
2,699

Acquisition related expenses
21,980

(2)  
6,428

(3)  
15,552

Total restructuring and acquisition related expenses
$
37,762

 
$
19,511

 
$
18,251

(1)
Restructuring expenses of $10.4 million, $3.1 million, $2.3 million for the year ended December 31, 2016 related to the integration of acquired businesses in our Specialty, North America and Europe segments, respectively. Restructuring expenses of $10.5 million, $2.0 million, and $0.6 million for the year ended December 31, 2015 were primarily related to the integration of acquired businesses in our Specialty, North America, and Europe segments, respectively. These integration activities included the closure of duplicate facilities and termination of employees in connection with the integration of our acquisitions into our existing business.
(2)
Acquisition related expenses for the year ended December 31, 2016 reflect $10.9 million and $4.1 million related to the acquisitions of Rhiag and PGW, respectively. The remaining $7.0 million of expense was related to other completed and potential acquisitions.
(3)
Acquisition related expenses for the year ended December 31, 2015 included $1.6 million for our acquisitions of eleven aftermarket parts distribution businesses in the Netherlands, $0.2 million for other European acquisitions, and $1.0 million related to our North America and Specialty acquisitions during the year. Acquisition related expenses also included $3.6 million for acquisitions that were pending as of December 31, 2015.
See Note 5, "Restructuring and Acquisition Related Expenses " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans.
Depreciation and Amortization . The following table summarizes depreciation and amortization for the periods indicated (in thousands):
 
Year Ended December 31,
 
 
 
 
2016
 
2015
 
Change
 
Depreciation
$
107,945

 
$
88,335

 
$
19,610

(1)  
Amortization
83,488

 
33,785

 
49,703

(2)  
Total depreciation and amortization
$
191,433

 
$
122,120

 
$
69,313

 
(1)
The increase in depreciation expense primarily reflects the depreciation expense for property and equipment related to our acquisitions of Rhiag and PGW of $14.0 million and $1.8 million, respectively. The remaining change primarily reflects increased levels of property and equipment to support our organic related growth.

35


(2)
The increase in amortization expense primarily reflects amortization expense for intangible assets related to our acquisitions of Rhiag and PGW of $42.7 million and $8.4 million, respectively. These increases are partially offset by a decline in accelerated amortization for intangibles recognized in previous years.
Other Expense, Net. The following table summarizes the components of the year-over-year increase in other expense, net (in thousands):
Other expense, net for the year ended December 31, 2015
$
55,597

 
Increase (decrease) due to:
 
 
Interest expense
30,403

(1)  
Loss on debt extinguishment
26,650

(2)  
Gains on foreign exchange contracts - acquisition related
(18,342
)
(3)  
Gain on bargain purchase
(8,207
)
(4)  
Interest and other income, net
16

 
Net increase
30,520

 
Other expense, net for the year ended December 31, 2016
$
86,117

 
(1)
Additional interest primarily relates to borrowings used to fund the acquisitions of Rhiag and PGW.
(2)
During the first quarter of 2016, we incurred a $23.8 million loss on debt extinguishment as a result of our early payment of Rhiag debt assumed as part of the acquisition, and we incurred a $2.9 million loss on debt extinguishment as a result of our January 2016 amendment to our senior secured credit agreement.
(3)
In March 2016, we entered into foreign currency forward contracts to acquire a total of €588 million used to fund the purchase price of the Rhiag acquisition. The rates under the foreign currency forwards were favorable to the spot rate on the date the funds were drawn to complete the acquisition, and as result, these derivatives contracts generated a gain of $18.3 million.
(4)
In October 2016, we acquired Andrew Page Limited ("Andrew Page") out of receivership. The fair value of the net assets acquired exceeded the purchase price, resulting in a gain on bargain purchase of $8.2 million.
Provision for Income Taxes . Our effective income tax rate was 32.6% for the year ended December 31, 2016, compared to 33.9% for the year ended December 31, 2015. The lower effective income tax rate reflects an $11.4 million discrete item in 2016 for excess tax benefits from stock-based payments related to the early adoption of ASU 2016-09 as described in Note 4, "Summary of Significant Accounting Policies " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. The adoption of this ASU reduced the effective tax rate by 1.6% compared to the prior year. Partially offsetting this, our effective tax rate was negatively impacted by an increase in the proportion of earnings generated in the U.S., which has a higher tax rate than our foreign operations, as well as an increase in nondeductible acquisition related costs, primarily related to our Rhiag and PGW acquisitions as well as other potential acquisitions. Excluding the impact of discrete items, our annual effective tax rate has been close to 35% over the last three years. The tax rate will fluctuate from year to year based on the geographic mix of earnings and changes in tax laws, but absent significant movements in either of these factors, we expect our annual effective rate to hold near 35%.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries. During the year ended December 31, 2015, we recorded impairment charges of $2.0 million related to our equity method investments; no tax benefit was recognized related to these charges. Our share of net operating losses in our equity method investments totaled $4.1 million for the year ended December 31, 2015. With our divestiture of ACM Parts in February 2016, our share of net operating losses in our equity method investments was nominal for the year ended December 31, 2016. We are reporting our equity in earnings of our investment in Mekonomen on a one quarter lag and therefore, no amounts were recorded for this investment during 2016.
Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the average rates used in 2015, the pound sterling and Canadian dollar rates used to translate the 2016 statements of income declined by 11.3% and 3.5%, respectively; the Euro remained flat relative to the U.S dollar during 2016. The translation effect of the decline in the pound sterling and Canadian dollar against the U.S. dollar and realized and unrealized currency losses during 2016 resulted in an approximately $0.05 negative effect on diluted earnings per share for continuing operations relative to the prior year.
Income from Discontinued Operations, net of tax.  Income from discontinued operations, net of tax totaled $7.9 million in 2016; we had no discontinued operations in the prior year. Discontinued operations for 2016 represents the glass manufacturing business of PGW, which was acquired in April 2016. The results include a $19.8 million, net of tax, impairment charge primarily related to property, plant and equipment that was triggered when the assets were classified as held for sale.

36


Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenue. The following table summarizes the changes in revenue by category (amounts in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
 
2015
 
2014
 
Organic
 
Acquisition
 
Foreign Exchange
 
Total Change
Parts & services revenue
$
6,713,951

 
$
6,086,759

 
7.0
 %
 
7.1
%
 
(3.8
)%
 
10.3
 %
Other revenue
478,682

 
653,305

 
(28.6
)%
 
2.2
%
 
(0.3
)%
 
(26.7
)%
Total revenue
$
7,192,633

 
$
6,740,064

 
3.5
 %
 
6.6
%
 
(3.4
)%
 
6.7
 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
The change in parts and services revenue of 10.3% represents increases of 6.8% in North America, 8.0% in Europe, and 30.6% in Specialty. The decline in other revenue of 26.7% primarily reflects the decline in the price of scrap steel and other metals. Refer to the discussion of our segment results of operations for factors contributing to revenue changes during 2015 compared to the prior year.
Cost of Goods Sold . Our cost of goods sold decreased to 60.6% of revenue for the year ended December 31, 2015 from 60.7% of revenue in the prior year. The decrease is related to (i) a decline of 0.3% in costs of goods sold in our European operations, as a result of a 0.2% decrease in our U.K. operations due to lower product costs and 0.1% due to internalizing gross margin from our May 2014 acquisitions of seven Netherlands distributors, and (ii) improved net pricing to customers in our North American operations; as our purchase costs were flat on average, the increase in revenue from favorable pricing resulted in a decrease of 0.2% in cost of goods sold as a percentage of revenue. These decreases were offset by (i) an increase of 0.2% in our Specialty operations due to higher inventory costs and unfavorable net customer pricing, and (ii) a negative mix effect of 0.3% primarily resulting from growth of our Specialty segment from our October 2014 acquisition of a supplier of parts for recreational vehicles, as this business yields lower gross margins than our North American and European segments. Refer to the discussion of our segment results of operations for factors contributing to the change in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 2015 compared to the prior year.
Facility and Warehouse Expenses . As a percentage of revenue, facility and warehouse expenses for the year ended December 31, 2015 decreased to 7.7% from 7.8% in the prior year. Compared to the prior year, we experienced a negative impact on operating leverage due to a decrease in other revenue, primarily as a result of declining prices of scrap steel and other metals. Excluding the impact of the decline in scrap and other metal prices of 0.1%, facility and warehouse expenses would have improved by 0.2% primarily reflecting a positive mix effect as a greater proportion of revenue was generated from our Specialty segment. Compared to our North American operations, Specialty stores a greater portion of inventory at their regional distribution centers, the costs of which are capitalized into inventory and expensed through cost of goods sold. In our North American wholesale operations, most of the inventory sold by our local operations is stored on site rather than in distribution centers, and the related facility and warehouse expenses of the local operations are recorded in this line item.
Distribution Expenses. As a percentage of revenue, distribution expenses for the year ended December 31, 2015 decreased to 8.4% from 8.6% in the prior year. Distribution expenses decreased by 0.4% compared to the prior year due to fuel cost savings driven by lower average prices. The decline in other revenue caused a 0.2% loss in operating leverage due to the revenue mix shift (scrap and other metals revenue has lower distribution costs than parts sales).
Selling, General and Administrative Expenses. As a percentage of revenue, selling, general and administrative expenses for the year ended December 31, 2015 increased to 11.5% from 11.3% in the prior year. Compared to the prior year, other revenue decreased as a result of declining prices of scrap steel and other metals, which negatively impacted our operating leverage and increased our selling, general and administrative expenses as a percentage of revenue by 0.2%. Excluding this impact, our selling, general and administrative expenses as a percentage of revenue were flat over the prior year.
Restructuring and Acquisition Related Expenses . The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):
 
Year Ended December 31,
 
 
 
2015
 
2014
 
Change
Restructuring expenses
$
13,083

(1)  
$
11,123

(2)  
$
1,960

Acquisition related expenses
6,428

(3)  
3,683

(4)  
2,745

Total restructuring and acquisition related expenses
$
19,511

 
$
14,806

 
$
4,705

(1)
Refer to our Year Ended December 31, 2016 compared to Year Ended December 31, 2015 discussion for details.

37


(2)
Restructuring expense for the year ended December 31, 2014 included $5.8 million of expense related to the integration of our Keystone Specialty acquisition, as well as $1.9 million, $1.0 million, and $0.8 million of expense related to the integration of acquired businesses in our European, North American and Specialty segments, respectively. Additionally, we incurred $1.6 million of severance costs to terminated employees as part of the ongoing rationalization of our European operations.
(3)
Refer to our Year Ended December 31, 2016 compared to Year Ended December 31, 2015 discussion for details.
(4)
Acquisition related expenses for the year ended December 31, 2014 include external costs primarily related to our acquisitions of seven distribution companies in the Netherlands.
See Note 5, "Restructuring and Acquisition Related Expenses " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans.
Depreciation and Amortization . The following table summarizes depreciation and amortization for the periods indicated (in thousands):
 
Year Ended December 31,
 
 
 
 
2015
 
2014
 
Change
 
Depreciation
$
88,335

 
$
86,216

 
$
2,119

(1)  
Amortization
33,785

 
34,503

 
(718
)
(2)  
Total depreciation and amortization
$
122,120

 
$
120,719

 
$
1,401

 
(1)
The increase in depreciation expense was a result of increased levels of property and equipment to support our acquisition and organic related growth, partially offset by a decline of $3.1 million attributable to the impact of foreign exchange rates.
(2)
The decrease in amortization expense reflects a $1.6 million decline due to foreign exchange rates partially offset by net increases in amortization expense for intangibles recorded related to our 2014 and 2015 acquisitions. The amortization expense for the year ended December 31, 2014 included accelerated amortization for intangibles recognized during 2014 for the January 2014 acquisition of Keystone Specialty.
Other Expense, Net. The following table summarizes the components of the year-over-year decrease in other expense, net (in thousands):
Other expense, net for the year ended December 31, 2014
$
61,980

 
Increase (decrease) due to:
 
 
Interest expense
(6,682
)
(1)  
Loss on debt extinguishment
(324
)
(2)  
Interest and other income, net
623

(3)  
Total decrease
(6,383
)
 
Other expense, net for the year ended December 31, 2015
$
55,597

 
(1)
Approximately $4.2 million of the reduction in interest expense from the prior year is due to lower outstanding borrowings. The remaining $2.5 million is attributable to lower interest rates under our senior secured credit agreement. The higher outstanding debt levels in the prior year were primarily related to borrowings used to finance the Keystone Specialty acquisition in January 2014 and cash flow from operations in 2015 that was used to pay down debt.
(2)
During the year ended December 31, 2014, we incurred a $0.3 million loss on debt extinguishment as a result of our March 2014 amendment to our senior secured credit agreement. We did not incur a similar charge during 2015.
(3)
The decrease in Interest and other income, net reflects an increase in contingent consideration expense relative to the prior year of $2.3 million partially offset by (i) an increase in customer finance fees of $1.3 million and (ii) a favorable impact due to a decrease in foreign currency losses of $0.5 million, including the impact of unrealized mark-to-market losses on foreign currency forward contracts used to hedge the purchase of inventory and, to a lesser extent, unrealized and realized gains and losses on foreign currency transactions for the year ended December 31, 2015 compared to the prior year.

38


Provision for Income Taxes . Our effective income tax rate was 33.9% for the year ended December 31, 2015, compared to 34.7% for the year ended December 31, 2014. The lower effective tax rate in 2015 reflects a 0.5% benefit relative to the prior year as a result of an increase in earnings in our lower tax rate international operations. In addition, the effective tax rate for 2015 benefited from discrete items, including favorable return to provision adjustments of $1.9 million and the favorable settlement of a Canada tax matter totaling $1.8 million. 
Equity in Earnings (Loss) of Unconsolidated Subsidiaries.  During the year ended December 31, 2015, we recorded impairment charges of $2.0 million in our equity method investments. No tax benefit was recognized related to these charges. Our share of net operating losses in our equity method investments totaled $4.1 million through the year ended December 31, 2015 compared to $2.1 million during the prior year.
Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the average rates used in 2014, the pound sterling, euro and Canadian dollar rates used to translate the 2015 statements of income declined by 7.2%, 16.4%, and 13.5%, respectively. The translation effect of the decline of these currencies against the U.S. dollar and realized and unrealized currency losses for the year resulted in an approximately $0.04 negative effect on diluted earnings per share relative to the prior year.

Results of Operations—Segment Reporting
We have five operating segments: Wholesale – North America; Europe; Specialty; Glass and Self Service. Our Wholesale – North America, Glass and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty.
Subsequent to the sale of our glass manufacturing business, we are combining our continuing Glass aftermarket products operating segment into our Wholesale – North America operating segment, which we expect to complete in 2017.
We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.



39


The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands):
 
Year Ended December 31,
 
2016
 
% of Total Segment Revenue
 
2015
 
% of Total Segment Revenue
 
2014
 
% of Total Segment Revenue
Third Party Revenue
 
 
 
 
 
 
 
 
 
 
 
North America
$
4,470,900

 
 
 
$
4,145,998

 
 
 
$
4,088,701

 
 
Europe
2,920,470

 
 
 
1,995,385

 
 
 
1,846,155

 
 
Specialty
1,192,661

 
 
 
1,051,250

 
 
 
805,208

 
 
Total third party revenue
$
8,584,031

 
 
 
$
7,192,633

 
 
 
$
6,740,064

 
 
Total Revenue
 
 
 
 
 
 
 
 
 
 
 
North America
$
4,471,639

 
 
 
$
4,146,833

 
 
 
$
4,089,290

 
 
Europe
2,920,470

 
 
 
1,995,455

 
 
 
1,846,155

 
 
Specialty
1,196,709

 
 
 
1,054,584

 
 
 
807,015

 
 
Eliminations
(4,787
)
 
 
 
(4,239
)
 
 
 
(2,396
)
 
 
Total revenue
$
8,584,031

 
 
 
$
7,192,633

 
 
 
$
6,740,064

 
 
Segment EBITDA
 
 
 
 
 
 
 
 
 
 
 
North America
$
596,333

 
13.3%
 
$
547,405

 
13.2%
 
$
543,943

 
13.3%
Europe
283,608

 
9.7%
 
200,563

 
10.1%
 
167,155

 
9.1%
Specialty
125,039

 
10.4%
 
106,561

 
10.1%
 
79,453

 
9.8%

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other acquisition related gains and losses and equity in earnings (loss) of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding discontinued operations, depreciation, amortization, interest (including loss on debt extinguishment) and income tax expense. See Note 14, "Segment and Geographic Information " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of total Segment EBITDA to Net Income.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
North America
Third Party Revenue . The following table summarizes the changes in third party revenue by category in our North America segment (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
North America
2016
 
2015
 
Organic
 
Acquisition (3)
 
Foreign Exchange (4)
 
Total Change
Parts & services revenue
$
4,036,143

 
$
3,671,595

 
2.9
 %
(1  
)  
7.3
%
 
(0.2
)%
 
9.9
 %
Other revenue
434,757

 
474,403

 
(11.2
)%
(2  
)  
3.0
%
 
(0.1
)%
 
(8.4
)%
Total third party revenue
$
4,470,900

 
$
4,145,998

 
1.3
 %
 
6.8
%
 
(0.2
)%
 
7.8
 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
Organic growth in parts and services revenue was primarily attributable to favorable pricing. Increased pricing in our wholesale operations, primarily in our salvage operations, was a result of shifting our salvage vehicle purchasing to higher quality vehicles, which raised the average revenue per part sold. Organic revenue also grew due to increased sales volumes in our wholesale operations resulting from improved fill rates and in-stock rates, as well as increased purchasing levels, which contributed to a greater volume of parts available for sale. The organic growth was partially offset by a negative mix impact as we saw a smaller percentage of sales from high value salvage part types in 2016.

40


Organic revenue growth in parts and services was also negatively affected by milder winter weather conditions in North America in the first quarter of 2016, which we believe impacted volume for the rest of the year.
(2)
The $40 million decrease in other revenue primarily relates to (i) a $21 million decline in revenue from metals, such as those found in catalytic converters (platinum, palladium, and rhodium), aluminum wheels, and copper wiring, due to lower prices year over year, (ii) a $13 million reduction due to the sale of our precious metals business late in the second quarter of 2015, and (iii) an $8 million decline in revenue from scrap steel and other metals primarily related to lower prices.
(3)
Acquisition related growth in 2016 includes $208.6 million from our acquisition of PGW. The remainder of our acquired revenue growth reflects revenue from our acquisition of nine wholesale businesses and a self service retail operation from the beginning of 2015 up to the one year anniversary of the acquisition dates.
(4)
Compared to the prior year, exchange rates reduced our revenue growth by 0.2%, primarily due to the strengthening of the U.S. dollar against the Canadian dollar compared to the prior year.
Segment EBITDA . Segment EBITDA increased $48.9 million, or 8.9%, in 2016 compared to the prior year. While other revenue decreased from the prior year, sequential increases in scrap steel prices in our salvage and self service operations benefited gross margins and had a favorable impact of $7.7 million on North America Segment EBITDA and approximately a $0.02 positive effect on diluted earnings per share. This favorable impact resulted from the increase in scrap steel prices between the date we purchased the car, which influences the price we pay for the car, and the date we scrapped the car, which influences the price we receive for scrapping the vehicle.
The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North American segment:
North America
 
Percentage of Total Segment Revenue
 
Segment EBITDA for the year ended December 31, 2015
 
13.2
 %
 
Increase (decrease) due to:
 
 
 
Change in gross margin
 
0.7
 %
(1)
Change in segment operating expenses
 
(0.6
)%
(2)
Segment EBITDA for the year ended December 31, 2016
 
13.3
 %
 
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
The improvement in gross margin reflects a 0.8% favorable impact from our self service operations, as car costs have decreased by a greater percentage year over year than revenue. Within our wholesale operations, we experienced a 0.5% favorable impact on gross margin as a result of procurement initiatives implemented in our aftermarket operations during 2016, which reduced our product costs. Partially offsetting these increases was an unfavorable impact of 0.4% related to our acquisition of PGW, which had lower gross margins than our existing North America operations as a result of a non-recurring inventory step-up adjustment recorded upon acquisition and higher cost products sourced from the glass manufacturing side of the business.
(2)
The increase in segment operating expenses as a percentage of revenue reflects (i) an increase in operating expenses of 0.3% related to our PGW acquisition, which had higher operating expenses as a percentage of revenue than our existing North America operations as a result of incremental costs related to shared Glass corporate expenses that are not expected to reoccur after the sale of the PGW glass manufacturing business closes, and (ii) a 0.3% increase in personnel costs as a percentage of revenue. These increases were partially offset by a 0.2% improvement in fuel prices as a percentage of revenue.



41


Europe
Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
Europe
2016
 
2015
 
Organic (1)
 
Acquisition (2)
 
Foreign Exchange (3)
 
Total Change
Parts & services revenue
$
2,915,841

 
$
1,991,106

 
7.2
 %
 
47.1
%
 
(7.9
)%
 
46.4
%
Other revenue
4,629

 
4,279

 
(0.6
)%
 
15.7
%
 
(7.0
)%
 
8.2
%
Total third party revenue
$
2,920,470

 
$
1,995,385

 
7.2
 %
 
47.1
%
 
(7.9
)%
 
46.4
%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
In our U.K. operations, parts and services revenue grew organically by 8.1%, while in Benelux region operations, parts and services revenue grew organically by 4.5%. Our organic revenue growth in the U.K., which resulted from higher sales volumes, was composed of a 6.6% increase in revenue from stores open more than 12 months and a 1.5% increase in revenue generated by 21 branch openings since the beginning of the prior year through the one-year anniversary of their respective opening dates. Organic revenue growth in our Benelux region was primarily due to a favorable mix impact resulting from a shift in sales to higher price products as well as increased prices; organic revenue also grew as a result of an additional selling day in 2016 compared to the prior year.
(2)
Acquisition related growth for the year-ended December 31, 2016 includes $847.5 million from our acquisition of Rhiag. The remainder of our acquired revenue growth includes revenue from our acquisitions of 14 distribution companies in the Netherlands, 3 wholesale businesses in our U.K. operations, and 3 salvage businesses in Sweden since the beginning of 2015 through the one-year anniversary of the acquisitions.
(3)
Compared to the prior year, exchange rates reduced our revenue growth by $158.2 million, or 7.9%, primarily due to the strengthening of the U.S. dollar against the pound sterling relative to 2015.
Segment EBITDA . Segment EBITDA increased $83.0 million, or 41.4%, in 2016 compared to the prior year. Our Rhiag acquisition contributed $94.3 million to Segment EBITDA in 2016, while our Andrew Page acquisition generated a loss of $4.8 million. Our Europe Segment EBITDA includes a negative year over year impact of $17.6 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during 2015. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $100.6 million, or 50.2%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations - Consolidated section above for further detail regarding foreign currency impact on our results for the year ended December 31, 2016.
The following table summarizes the changes in segment EBITDA as a percentage of revenue in our Europe segment:
Europe
 
Percentage of Total Segment Revenue
 
Segment EBITDA for the year ended December 31, 2015
 
10.1
 %
 
(Decrease) increase due to:
 
 
 
Change in gross margin
 
(1.1
)%
(1)
Change in segment operating expenses
 
0.8
 %
(2)
Change in other expense
 
(0.1
)%
 
Segment EBITDA for the year ended December 31, 2016
 
9.7
 %
 
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
The decrease in gross margin reflects a 1.3% decline in gross margin due to the acquisition of Rhiag, which has lower gross margins than our other Europe operations.
(2)
The decrease in segment operating expenses as a percentage of revenue reflects (i) a decrease of 1.8% in operating expenses as a result of the acquisition of Rhiag, which has lower operating expenses as a percentage of revenue than our other Europe operations and (ii) a 0.3% decrease in distribution expenses in our U.K. operations due to reduced personnel costs. Partially offsetting these decreases were (i) an increase in facility and warehouse expenses of 0.8% from a 0.5% increase primarily related to the opening of 21 new branches and 6 new hubs since the prior year and

42


0.3% related to the addition of facility and personnel costs for the Tamworth distribution facility, and (ii) an increase of 0.3% in operating expenses as a result of the acquisition of Andrew Page, which has higher operating expenses as a percentage of revenue than our other Europe operations. While we have closed the Andrew Page acquisition and are consolidating its results, we are not permitted to integrate this acquisition with our existing U.K. operations until we receive approval from the U.K. Competition and Markets Authority.

Specialty
Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
Specialty
2016
 
2015
 
Organic (1)
 
Acquisition (2)
 
Foreign Exchange (3)
 
Total Change
Parts & services revenue
$
1,192,661

 
$
1,051,250

 
6.9
%
 
6.8
%
 
(0.3
)%
 
13.5
%
Other revenue
—

 
—

 
—
%
 
—
%
 
—
 %
 
—
%
Total third party revenue
$
1,192,661

 
$
1,051,250

 
6.9
%
 
6.8
%
 
(0.3
)%
 
13.5
%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
Organic growth in Specialty parts and services revenue reflects an increase in service levels throughout North America as we continue to expand the breadth and depth of our inventory offerings and add delivery capacity to our integrated distribution network to allow us to realize synergies associated with the integration of Coast. Through most of 2016, we also saw growth from favorable macro trends and economic conditions, which increased consumer discretionary spending on automotive and recreational vehicle parts and accessories.
(2)
Acquisition related growth reflects the impact of the Coast acquisition on August 19, 2015 through the one year anniversary of the acquisition.
(3)
Compared to the prior year, exchange rates reduced our revenue growth by $3.3 million, or 0.3%, primarily due to the strengthening of the U.S dollar against the Canadian dollar relative to 2015.
Segment EBITDA . Segment EBITDA increased $18.5 million, or 17.3%, in 2016 compared to the prior year.
The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:
Specialty
 
Percentage of Total Segment Revenue
 
Segment EBITDA for the year ended December 31, 2015
 
10.1
 %
 
(Decrease) increase due to:
 
 
 
Change in gross margin
 
(0.8
)%
(1)
Change in segment operating expenses
 
1.0
 %
(2)
Change in other expenses
 
0.1
 %
 
Segment EBITDA for the year ended December 31, 2016
 
10.4
 %
 
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
The decline in gross margin reflects (i) a 0.4% unfavorable impact due to customer volume rebates which have increased along with sales volume, (ii) a 0.3% increase in inventory costs, which were higher due to the stocking of two distribution centers, one of which was not yet operational in the prior year period and one which became operational in the fourth quarter of 2015, and (iii) a decrease in advertising credits of 0.3% due to higher purchase volume in 2015 from the initial stocking of those two new distribution centers. These negative effects were partially offset by a 0.4% improvement due to Coast related freight synergies as more volume went through the existing Specialty network.
(2)
The decrease in segment operating expenses reflects a favorable 1.0% reduction in selling, general and administrative expenses primarily related to (i) a 0.4% decline in personnel costs from the realization of integration synergies, (ii) lower bad debt expense of 0.2% due to increased collection efforts and (iii) individually insignificant decreases across

43


various selling, general and administrative expense categories totaling 0.4%. Favorable distribution expenses of 0.2% due to lower fuel and freight costs were offset by an increase in facilities and warehouse expense primarily related to the higher cost of Coast facilities as well as the addition of two new distribution centers.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
North America
Third Party Revenue . The following table summarizes the changes in third party revenue by category in our North American segment (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
North America
2015
 
2014
 
Organic
 
Acquisition (1)
 
Foreign Exchange
 
Total Change
Parts & services revenue
$
3,671,595

 
$
3,437,821

 
5.6
 %
(2)  
2.2
%
 
(1.0
)%
 
6.8
 %
Other revenue
474,403

 
650,880

 
(28.8
)%
(3)  
2.0
%
 
(0.3
)%
 
(27.1
)%
Total third party revenue
$
4,145,998

 
$
4,088,701

 
0.1
 %
 
2.2
%
 
(0.9
)%
 
1.4
 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
The acquisition growth in revenue reflects the impact of 13 wholesale businesses and 3 self service retail operations acquired since the beginning of 2014 up to the one year anniversary of the acquisition date
(2)
Approximately 60% of our organic growth in parts and services revenue was due to increased net pricing in our wholesale operations. In our aftermarket operations, we increased our net prices to customers compared to the prior year. In our salvage operations, we shifted our salvage vehicle purchasing to higher quality vehicles beginning in the third quarter of 2014, which increased the average revenue per part sold during 2015. The remainder of our organic growth in parts and services revenue was primarily due to increased sales volumes in our salvage operations and to a lesser extent, our aftermarket operations.
(3)
Approximately $161 million of the $187 million organic decline in other revenue was a result of lower prices received from the sale of scrap and other metals. This was primarily due to lower prices from the sale of crushed auto bodies, which fluctuate based on steel prices. Lower sales volumes were responsible for the remaining decline, primarily due to fewer vehicles processed relative to the prior year.
Segment EBITDA . Segment EBITDA increased $3.5 million, or 0.6%, in 2015 compared to the prior year. The decline in scrap steel and other metals prices as described in the revenue section above had a negative year over year impact of $34.4 million on North American Segment EBITDA and a $0.07 negative effect on diluted earnings per share relative to the prior year.
The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment:
North America
 
Percentage of Total Segment Revenue
 
Segment EBITDA for the year ended December 31, 2014
 
13.3
 %
 
Increase due to:
 
 
 
Change in gross margin
 
0.4
 %
(1)
Change in segment operating expenses
 
(0.5
)%
(2)
Segment EBITDA for the year ended December 31, 2015
 
13.2
 %
 
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
The improvement in gross margin reflects a 0.2% favorable impact from our aftermarket product lines and a 0.1% favorable mix impact resulting from more revenue being derived from our wholesale operations, which have higher gross margin percentages relative to our self service operations during periods when scrap and other metal prices decline. In our aftermarket products, we improved our gross margin through increases in net prices to our customers. Despite the continued decline in scrap and other metal prices, margins in our self service operations have remained consistent year over year, resulting from the continued effort to reduce car costs and purchase higher quality cars that

44


will yield more parts revenue per vehicle to offset the loss in scrap and other metal revenue.
(2)
The decline in Segment EBITDA margin related to operating expenses was primarily the result of the negative impact on operating leverage caused by the decrease in other revenue related to the declining prices of scrap steel and other metals. In periods of falling scrap revenue, we do not experience a commensurate decline in operating expenses, as we have few variable costs associated with the sale of scrap and other metals. The 0.5% increase in segment operating expenses as a percentage of revenue included an unfavorable impact of 1.1% related to the decline in prices for scrap steel and other metals. This increase was partially offset by an improvement in segment operating expenses of 0.6%, which is primarily the result of a 0.4% improvement in distribution expenses due to a reduction in fuel costs.
Europe
Third Party Revenue . The following table summarizes the changes in third party revenue by category in our European segment (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
Europe
2015
 
2014
 
Organic (1)
 
Acquisition (2)
 
Foreign Exchange (3)
 
Total Change
Parts & services revenue
$
1,991,106

 
$
1,843,730

 
9.2
%
 
8.5
%
 
(9.7
)%
 
8.0
%
Other revenue
4,279

 
2,425

 
23.7
%
 
60.3
%
 
(7.5
)%
 
76.4
%
Total third party revenue
$
1,995,385

 
$
1,846,155

 
9.3
%
 
8.6
%
 
(9.7
)%
 
8.1
%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
In our U.K. operations, parts and services revenue grew organically by 11.8%, while in our continental European operations, parts and services revenue grew organically by 2.8%, resulting in net organic revenue growth of 9.2% over the prior year. Our organic revenue growth in the U.K., which resulted from higher sales volumes, was composed of a 7.5% increase in revenue from stores open more than 12 months and a 4.3% increase from revenue generated by 54 branch openings since the beginning of the prior year through the one year anniversary of their respective opening dates. Organic revenue growth in our continental European operations was primarily due to the opening of a new warehouse location in France in 2014 and, to a lesser extent, growth in our Belgian market.
(2)
Acquisition related growth for the year-ended December 31, 2015 includes $158.1 million from our acquisitions of 18 distribution companies in the Netherlands since the beginning of 2014 and the purchase of a salvage business in Sweden through the one year anniversary of the acquisitions.
(3)
Compared to the prior year, exchange rates reduced our revenue growth by $179.8 million, or 9.7%, primarily due to the strengthening of the U.S. dollar against both the pound sterling and euro relative to 2014.
Segment EBITDA . Segment EBITDA increased $33.4 million, or 20%, to $200.6 million through the year ended December 31, 2015 compared to $167.2 million in the prior year. Our European Segment EBITDA includes a negative year over year impact of $15.7 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during 2014. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $49.1 million, or 29.4%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations - Consolidated section above for further detail regarding foreign currency impact on our results for the year ended December 31, 2015. The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our European segment:
Europe
 
Percentage of Total Segment Revenue
 
Segment EBITDA for the year ended December 31, 2014
 
9.1
 %
 
Increase (decrease) due to:
 
 
 
Change in gross margin
 
1.3
 %
(1)
Change in segment operating expenses
 
(0.3
)%
(2)
Segment EBITDA for the year ended December 31, 2015
 
10.1
 %
 
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

45


(1)
The increase in gross margin reflects improvement of 0.7% in our UK operations, primarily as a result of a reduction in product costs and an increase in supplier rebates, and 0.6% in our continental European operations as a result of internalizing incremental gross margin from our 2014 acquisitions of seven Netherlands distributors.
(2)
The increase in segment operating expenses reflects higher selling, general and administrative expenses of 0.5%, related to higher personnel costs to support the growth of the business, including our e-commerce business, in the UK and continental Europe. Distribution costs improved over the prior year period by 0.2% due to internalizing previously outsourced delivery expenses as well as lower fuel costs.

Specialty
Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):
 
Year Ended December 31,
 
Percentage Change in Revenue
Specialty
2015
 
2014
 
Organic (1)
 
Acquisition (2)
 
Foreign Exchange (3)
 
Total Change
Parts & services revenue
$
1,051,250

 
$
805,208

 
7.8
%
 
24.6
%
 
(1.9
)%
 
30.6
%
Other revenue
—

 
—

 
—
%
 
—
%
 
—
 %
 
—
%
Total third party revenue
$
1,051,250

 
$
805,208

 
7.8
%
 
24.6
%
 
(1.9
)%
 
30.6
%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
Organic growth in Specialty parts and services revenue reflects increased sales volumes as a result of favorable economic conditions.
(2)
Acquisition related growth reflects the impact of two Specialty businesses acquired in the fourth quarter of 2014, as well as the acquisition of Coast on August 19, 2015.
(3)
Compared to the prior year, exchange rates reduced our revenue growth by 1.9%, primarily due to the strengthening of the U.S. dollar against the Canadian dollar in 2015 compared to the prior year.
Segment EBITDA . Segment EBITDA increased $27.1 million, or 34.1%, in 2015 compared to the prior year.
The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:
Specialty
 
Percentage of Total Segment Revenue
 
Segment EBITDA for the year ended December 31, 2014
 
9.8
 %
 
(Decrease) increase due to:
 
 
 
Change in gross margin
 
(1.2
)%
(1)
Change in segment operating expenses
 
1.5
 %
(2)
Change in other expenses
 
0.1
 %
 
Segment EBITDA for the year ended December 31, 2015
 
10.1
 %
 
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)
The decline in gross margin reflects a 0.7% increase in inventory costs, most of which we expect to be temporary as integration plans are completed, and a decrease in gross margin of 0.4% due to unfavorable net customer pricing. Our acquisition completed in the fourth quarter of 2014 of a supplier of parts for recreational vehicles resulted in a 0.4% decline in gross margin compared to the prior year. Compared to our existing Specialty business, this acquisition realizes lower gross margins than our other specialty product sales. These negative effects on gross margin were partially offset by a favorable mix effect of 0.2% resulting from a shift toward higher margin product lines, particularly truck and off road products.
(2)
Reflects a 0.8% reduction in selling, general and administrative expenses as a percentage of revenue related to (i) a 0.6% decline in personnel expenses as a percentage of revenue primarily as a result of integration synergies and (ii) a reduction in professional fees and advertising expenses of 0.2% . Distribution expenses decreased 0.7% due to (i) favorable fuel pricing compared to the prior year of 0.6% , (ii) logistics synergies of 0.5% as we leverage our North

46


American distribution network for the delivery of specialty products, partially offset by (iii) higher freight costs of 0.4% driven by higher use of third party freight to handle increased volumes, as well as sales related to our October 2014 acquisition of a supplier of parts for recreational vehicles and our 2015 acquisition of Coast, which are all shipped via third party carriers.


47


Liquidity and Capital Resources
The following table summarizes liquidity data as of the dates indicated (in thousands):
 
December 31, 2016
 
December 31, 2015
Cash and equivalents
$
227,400

 
$
87,397

Total debt (1)
3,365,687

 
1,599,695

Current maturities (2)
68,414

 
57,494

Capacity under credit facilities (3)
2,550,000

 
1,947,000

Availability under credit facilities (3)
1,019,112

 
1,337,653

Total liquidity (cash and equivalents plus availability on credit facilities)
1,246,512

 
1,425,050


(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $23.9 million and $15.0 million as of December 31, 2016 and 2015, respectively).

(2) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $2.3 million and $1.5 million as of December 31, 2016 and 2015, respectively).
(3) Includes our revolving credit facilities, our receivables securitization facility, and letters of credit.
We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions or paying down outstanding debt. As we have pursued acquisitions as part of our growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes, and a receivables securitization facility.
As of December 31, 2016 , we had debt outstanding and additional available sources of financing, as follows:
•
Senior secured credit facilities maturing in January 2021, composed of term loans totaling $750 million ( $732.7 million outstanding at December 31, 2016) and $2.45 billion in revolving credit ( $1.36 billion outstanding at December 31, 2016), bearing interest at variable rates (although a portion of this debt is hedged through interest rate swap contracts) reduced by $72.7 million of amounts outstanding under letters of credit
•
Senior Notes totaling $600 million , maturing in May 2023 and bearing interest at a 4.75% fixed rate
•
Euro Notes totaling $ 526 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate
•
Receivables securitization facility with availability up to $100 million ( $100 million outstanding as of December 31, 2016 ), maturing in November 2019 and bearing interest at variable commercial paper rates
From time to time, we may undertake financing transactions to increase our available liquidity, such as our January 2016 amendment to our senior secured credit facilities, the issuance of €500 million of Euro Notes in April 2016, and the November 2016 amendment to our receivables securitization facility. The Rhiag acquisition was the catalyst for the April issuance of €500 million of Euro Notes. Given that Rhiag is a long term asset, we considered alternative financing options and decided to fund a portion of this acquisition through the issuance of long term notes. Additionally, the interest rates on Rhiag's acquired debt ranged between 6.45% and 7.25%. With the issuance of the €500 million of senior notes at a rate of 3.875%, we were able to replace Rhiag's borrowings with long term financing at favorable rates. This refinancing also provides financial flexibility to execute our long-term growth strategy by freeing up availability under our revolver. If we see an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding.
As of December 31, 2016 , we had approximately $1.02 billion  available under our credit facilities. Combined with approximately  $227.4 million  of cash and equivalents at  December 31, 2016 , we had approximately  $1.25 billion  in available liquidity, a decrease of $178.5 million from our available liquidity as of December 31, 2015 . We expect to use the proceeds from the sale of PGW's glass manufacturing business to pay down borrowings under our revolving credit facilities, which would increase our available liquidity by approximately $310 million when the transaction closes.

48


We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements, although such sources may not be sufficient for future acquisitions depending on their size. While we believe that we have adequate capacity, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.
Borrowings under the credit agreement accrue interest at variable rates, which are tied to LIBOR or CDOR, depending on the currency and the duration of the borrowing, plus an applicable margin rate which is subject to change quarterly based on our reported leverage ratio. We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings, with the effect of fixing the interest rates on the respective notional amounts. In addition, in 2016, we entered into cross currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note 10, "Derivative Instruments and Hedging Activities " to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at December 31, 2016 was 2.0% . Including our senior notes and the borrowings on our receivables securitization program, our overall weighted average interest rate on borrowings was 2.8% at December 31, 2016 .
Cash interest payments were $86.0 million for the year ended December 31, 2016 , including interest payments totaling $28.5 million related to our Senior Notes. In September 2016, we made our first semi-annual interest payment on our Euro Notes totaling €9.0 million ($10.1 million); the remaining semi-annual interest payments on our Euro Notes will be made in October and April each year. Cash interest payments in 2016 also included $8.0 million of interest paid as part of the settlement of Rhiag's acquired debt and $4.9 million to settle the acquired Rhiag interest rate swap in the first quarter of 2016.
We had outstanding credit agreement borrowings of $2.1 billion and $0.9 billion at December 31, 2016 and 2015, respectively. Of these amounts, $37.2 million and $22.5 million were classified as current maturities at December 31, 2016 and 2015, respectively.
The scheduled maturities of long-term obligations outstanding at December 31, 2016 are as follows (in thousands):
Years ending December 31:
 
2017
$
68,414

2018
42,553

2019
140,594

2020
39,002

2021
1,942,680

Thereafter
1,132,444

Total debt (1)
$
3,365,687

(1)  The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $23.9 million as of December 31, 2016).
Our credit agreement contains customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of December 31, 2016 .
As of  December 31, 2016 , the Company had cash and equivalents of  $227.4 million , of which $175.4 million was held by foreign subsidiaries. We consider the undistributed earnings of these foreign subsidiaries to be indefinitely reinvested, and accordingly no provision for U.S. income taxes has been provided thereon. Should these earnings be repatriated in the future, in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and potential withholding taxes payable to the various foreign countries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without resorting to repatriation of foreign earnings.

49


Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases at the time of shipment or on standard payment terms, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.
The following table sets forth a summary of our aftermarket inventory procurement for 2016 and 2015 (in thousands):
 
Year Ended December 31,
 
 
2016
 
2015
 
Change
 
North America
$
1,198,556

 
$
1,023,400

 
$
175,156

(1)  
Europe
2,012,804

 
1,143,668

 
869,136

(2)  
Specialty
934,119

 
776,611

 
157,508

(3)  
Total
$
4,145,479

 
$
2,943,679

 
$
1,201,800

 
(1)
In North America, aftermarket purchases for the year increased primarily as a result of incremental purchases of $140.7 million related to our April 2016 acquisition of PGW. Additionally, North America aftermarket inventory purchases increased as a result of our July 2015 acquisition of Parts Channel coupled with lower purchase levels in the first quarter of 2015 due to accelerated purchases in the fourth quarter of 2014 in anticipation of potential labor issues at West Coast ports in the United States.
(2)
In our Europe segment, the increase in purchases was primarily due to our acquisition of Rhiag in March 2016, which added incremental purchases of $710.3 million during 2016. Purchases for our U.K. operations increased in 2016 compared to the prior year primarily as a result of 21 branch openings since the beginning of the prior year and incremental inventory purchases to stock the Tamworth, England national distribution center. Purchases in our Netherlands operations increased as a result of organic and acquisition related growth. These increases were partially offset by the devaluation of the pound sterling in 2016 compared to the prior year.
(3)
The increase in Specialty aftermarket purchases was primarily due to (i) accelerated inventory purchases to stock two new distribution centers during the first quarter of 2016, (ii) additional purchases to support the increased sales volume as a result of the Coast acquisition, and (iii) additional inventory purchases in 2016 due to stronger than anticipated sales volumes as a result of our annual trade shows.
Manufacturing inventory purchases related to our discontinued operations totaled $397.5 million during 2016, and consisted of raw materials used in PGW's manufacturing and fabrication of automotive glass products.
The following table sets forth a summary of our global salvage and self service procurement for 2016 and 2015 (in thousands):
 
Year Ended December 31,
 
 
2016
 
2015
 
% Change
 
North America wholesale salvage cars and trucks
291

 
290

 
0.3
%
 
Europe wholesale salvage cars and trucks
23

 
20

 
15.0
%
 
Self Service and "crush only" cars
524

 
471

 
11.3
%
(1)  
(1)
Compared to the prior year period, we increased our purchase of lower cost self service and "crush only" cars as prices for vehicles have come down in certain markets due to the decline in the prices of scrap and other metals, allowing us to purchase higher quality vehicles at favorable prices.
Net cash provided by operating activities totaled $635.0 million for the year ended December 31, 2016 , an increase of $90.7 million compared to $544.3 million in 2015 . During 2016, our glass manufacturing business, which was acquired in April 2016, generated $64.4 million of cash flows from operations from the acquisition date through year-end. These operating cash flows are expected to be nonrecurring as we plan to close the sale of this business in the first quarter of 2017.
The remaining increase in cash provided by operating activities was attributable to our continuing operations. During 2016, our income from continuing operations increased by $32.9 million compared to the prior year due to both acquisition related growth and organic growth. In addition, non-cash depreciation and amortization expense increased by $70.1 million compared to the prior year, primarily as a result of our Rhiag and PGW acquisitions. Cash paid for taxes for our continuing

50


operations increased by $37.0 million during 2016 compared to the prior year as a result of growth in the business, primarily related to our Rhiag acquisition.
Cash outflows for our primary working capital accounts (receivables, inventory and payables) totaled $115.1 million during 2016 compared to $72.7 million during 2015 . Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period and can be influenced by factors outside of our control. However, we expect that the net change in these working capital items will generally be a cash outflow as we grow our business each year. Cash outflows related to receivables were $80.2 million higher in 2016 than the prior year. The increase in accounts receivable is primarily related to our U.K. operations as a result of increased sales; the remaining increase primarily related to our Specialty operations, which experienced larger growth in receivables balances during 2016 than the prior year period from organic and acquisition revenue growth. Compared to the prior year, cash outflows related to inventory declined $16.6 million, primarily a result of our North America and Specialty operations. This was partially offset by inventory growth in our U.K. operations as a result of incremental inventory purchases to stock new branches and the Tamworth, England national distribution center. Accounts payable represented a $17.0 million cash inflow in 2016 compared to a $4.2 million cash outflow in the prior year. The increase is primarily related to a rise in the payables balance in our U.K. operations, partially offset by a decline in the payables balance in our North America and Rhiag operations due to the timing of payments.
Net cash used in investing activities totaled $1.7 billion for the year ended December 31, 2016 , compared to $330.0 million in 2015 . We invested $1.3 billion of cash, net of cash acquired, in business acquisitions during 2016 , which included $601.4 million for our Rhiag acquisition and $661.7 million for our PGW acquisition, compared to $160.5 million for business acquisitions in 2015. Property and equipment purchases were $207.1 million in the year ended December 31, 2016 compared to $170.5 million in the prior year. Purchases of property and equipment increased over the prior period primarily as a result of $24.2 million of purchases in our discontinued operations and a $19.6 million increase in our North America segment. In 2016, we paid $185.7 million for investments in unconsolidated subsidiaries, primarily related to our investment in Mekonomen; payments for investments in consolidated subsidiaries were $9.7 million in 2015. In 2016, we entered into foreign currency contracts to fund the purchase price of the Rhiag acquisition, which generated $18.3 million  of gains; we had no such contracts in the prior year period. During 2016 , cash provided by other investing activities, net was  $13.8 million , primarily from the proceeds on the sale of our interest in our Australian joint venture, compared to $10.7 million in 2015 primarily as a result of proceeds from disposals of fixed assets.
Net cash provided by financing activities totaled $1.2 billion for the year ended December 31, 2016 , compared to net cash used in financing activities of $238.5 million in 2015 . During 2016 , net borrowings under our credit facilities were $1.3 billion compared to net repayments of $186.5 million in 2015 . The increase in borrowings during 2016 is primarily the result of borrowings under our multi-currency revolving credit facility in order to fund the acquisitions of Rhiag and PGW and investment in Mekonomen and repay $543.3 million of Rhiag acquired debt and debt related liabilities. The increase in borrowings during 2016 also reflects our 2016 amendments of our credit facilities, which generated $338.5 million in additional term loan borrowings, a portion of which was used to repay outstanding revolver borrowings. In April 2016, we issued the Euro Notes, generating proceeds of $563.5 million. The proceeds from the Euro Notes were used to repay a portion of the borrowings on the revolving credit facility. In connection with our January and December 2016 amendments of our credit facilities, our April 2016 issuance of the Euro Notes, and our November 2016 amendment to our receivables securitization facility, we paid  $16.6 million  of debt issuance costs during the 2016; debt issuance costs incurred in the prior year were minimal.
We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts, the costs and timing of expansion of our sales and marketing activities, and the costs and timing of future business acquisitions.
    
    



51


Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
The following table sets forth a summary of our aftermarket inventory procurement for 2015 and 2014 (in thousands):
 
Year Ended December 31,
 
 
2015
 
2014
 
Change
 
North America
$
1,023,400

 
$
985,300

 
$
38,100

(1)  
Europe
1,143,668

 
1,087,020

 
56,648

(2)  
Specialty
776,611

 
612,970

 
163,641

(3)  
Total
$
2,943,679

 
$
2,685,290

 
$
258,389

 
(1)
In North America, we accelerated our aftermarket inventory purchases in the fourth quarter of 2014 in anticipation of potential labor issues at West Coast ports in the U.S., leading to growth in the year-end inventory balance. As a result, our aftermarket inventory purchases in the first half of 2015 fell below 2014 levels. During the second half of 2015, we increased our aftermarket inventory purchases above the prior year levels as a result of an increase in sales and the depletion of the inventory acquired in the fourth quarter of 2014. Our July 2015 acquisition of Parts Channel also contributed to the increase in purchases in the second half of 2015. For the year ended December 31, 2015, our North American purchases were $38.1 million higher than the prior year.
(2)
In our European segment, our acquisitions of the Netherlands distributors in 2014 and 2015 contributed incremental inventory purchases of $49.4 million for the year ended December 31, 2015. Purchases for our U.K. operations increased in 2015 compared to the prior period primarily as a result of opening five new regional distribution centers. However, the greater purchase levels in Europe were partially offset by the devaluation of the pound sterling and euro compared to the prior year period.
(3)
The increase in Specialty aftermarket inventory purchases of $163.6 million during the year ended December 31, 2015, was related to accelerated inventory purchases to stock two new distribution centers, one of which opened in late 2015 and one of which opened in the first quarter of 2016. Our August 2015 acquisition of Coast and our October 2014 acquisition of a supplier of parts for recreational vehicles also contributed to the increase in purchases compared to the prior year period.
The following table sets forth a summary of our global salvage and self service procurement for 2015 and 2014 (in thousands):
 
Year Ended December 31,
 
 
2015
 
2014
 
% Change
 
North America wholesale salvage cars and trucks
290

 
290

 
—
 %
 
Europe wholesale salvage cars and trucks
20

 
—

 
n/m

 
Self Service and "crush only" cars
471

 
514

 
(8.4
)%
 
Net cash provided by operating activities totaled $544.3 million for the year ended December 31, 2015 , compared to $388.7 million in 2014 . Compared to the prior year, our 2015 EBITDA increased by $52.9 million, due to both acquisition related growth and organic growth. See Note 14, "Segment and Geographic Information " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of EBITDA to Net Income.
Cash outflows for our primary working capital accounts (receivables, inventory and payables) totaled $72.7 million during 2015 compared to $189.8 million during 2014 . In 2015, cash outflows for inventory totaled $83.2 million as a result of inventory growth, particularly in our Specialty operations; cash outflows for inventory were $122.6 million in the prior year. As discussed above, we increased our North American aftermarket inventory purchases in the fourth quarter of 2014 in anticipation of port issues in the U.S., which resulted in a larger cash outflow in the prior year as compared to 2015. Accounts receivable represented a cash inflow of $14.7 million in 2015 compared to a cash outflow of $61.7 million in 2014. In Europe, our Netherlands operations experienced a reduction in accounts receivable in 2015 as result of a higher rate of collections due to the implementation of an automatic payment program. In the prior year, receivables balances increased primarily as a result of increased sales levels in our U.K. operations. Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period and can be influenced by factors outside of our control. However, we expect that the net change in these working capital items will generally be a cash outflow as we grow our business each year.
Net cash used in investing activities totaled $330.0 million  for the year ended  December 31, 2015 , compared to  $921.0 million  for the same period of  2014 .We invested  $160.5 million  of cash, net of cash acquired, in business acquisitions during

52


2015 , compared to $775.9 million  for business acquisitions in 2014 , which included $427.1 million for our Keystone Specialty acquisition. Property and equipment purchases were  $170.5 million  in the year ended  December 31, 2015 compared to  $141.0 million  in the prior year. The increase in capital expenditures relative to the prior year period reflects an increase of $33.0 million in our U.K. operations primarily due to costs incurred to develop and equip a new distribution center. During 2015 , cash provided by other investing activities, net was $ 10.7 million  and primarily consisted of proceeds from disposals of fixed assets totaling $10.7 million, partially offset by payments of $9.7 million for investments in unconsolidated subsidiaries, including a $7.5 million payment to increase our investment in ACM Parts. During 2014 , we paid $2.2 million for investments in unconsolidated subsidiaries.
Net cash provided by financing activities totaled  $238.5 million  for the year ended  December 31, 2015 , compared to  $501.2 million  in  2014 . During 2015 , net repayments under our credit facilities were $186.5 million compared to net borrowings of $578.4 million in 2014 . Compared to the prior year period, our cash investment in acquisitions was lower, and therefore, we used the excess cash generated by operations to repay outstanding amounts under our revolving credit facilities. During 2014, we used the proceeds from the net borrowings primarily to fund acquisitions, including $370 million of revolver borrowings and $80 million of borrowings under our receivables facility to finance the Keystone Specialty acquisition. Our March 2014 amendment of our credit facilities generated $11.3 million in additional term loan borrowings, which were used to pay $3.7 million in debt issuance costs related to the amendment, as well as to repay outstanding revolver borrowings. During 2014, we made a payment of $44.8 million ($39.5 million included in financing cash flows and $5.3 million included in operating cash flows) for the final earnout period under the contingent payment agreement related to our 2011 ECP acquisition. Cash generated from exercises of stock options provided $8.2 million  and $9.3 million  in the years ended December 31, 2015 and 2014 , respectively. The excess tax benefit from share-based payment arrangements reduced income taxes payable by $14.4 million  and  $17.8 million  in the years ended  December 31, 2015 and 2014 , respectively. We paid $7.6 million and $0.4 million related to taxes for net share settlements of stock-based compensation in the years ended December 31, 2015 and 2014 , respectively. During the year ended December 31, 2014 , we paid $12.6 million related to the settlement of foreign currency forward contracts; no such payment occurred in 2015.

Off-Balance Sheet Arrangements and Future Commitments
We do not have any off-balance sheet arrangements or undisclosed borrowings or debt that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934. Additionally, we do not have any synthetic leases.
The following table represents our future commitments under contractual obligations as of December 31, 2016 (in millions):
 
Total
 
Less than
1 Year
 
1-3 Years
 
3-5 Years
 
More than
5 Years
Contractual obligations

 
 
 
 
 
 
 
 
Long-term debt (1)
$
3,897.5

 
$
166.5

 
$
380.0

 
$
2,136.5

 
$
1,214.5

Capital lease obligations (2)
24.8

 
4.5

 
4.9

 
2.2

 
13.2

Operating leases (3)
1,184.6

 
200.4

 
305.4

 
192.6

 
486.2

Purchase obligations (4)
344.8

 
342.5

 
1.9

 
0.4

 
—

Other long-term obligations (5)
247.9

 
142.1

 
49.3

 
14.1

 
42.4

Total
$
5,699.6

 
$
856.0

 
$
741.5

 
$
2,345.8

 
$
1,756.3

Note: This table only includes amounts related to continuing operations.
(1)
Our long-term debt under contractual obligations above includes interest of $546.0 million on the balances outstanding as of December 31, 2016 . The long-term debt balance excludes debt issuances costs as these expenses have already been paid. Interest on our senior notes, notes payable, and other long-term debt is calculated based on the respective stated rates. Interest on our variable rate credit facilities is calculated based on the weighted average rates, including the impact of interest rate swaps through their respective expiration dates, in effect for each tranche of borrowings as of December 31, 2016 . Future estimated interest expense for the next year, one to three years, and three to five years is $102.1 million, $201.0 million and $156.4 million, respectively. Estimated interest expense beyond five years is $86.5 million.
(2)
Interest on capital lease obligations of $10.6 million is included based on incremental borrowing or implied rates. Future estimated interest expense for the next year, one to three years, and three to five years is $0.4 million, $0.7 million and $0.6 million, respectively. Estimated interest expense beyond five years is $8.9 million.

53


(3)
The operating lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under our operating leases but are generally not fixed and can fluctuate from year to year.
(4)
Our purchase obligations include open purchase orders for aftermarket inventory.
(5)
Our other long-term obligations consist of estimated payments for our self insurance reserves of $77.6 million and outstanding letters of credit of $72.7 million, with the remaining $97.6 million representing primarily other asset purchase commitments and payments for deferred compensation and pension plans.


54


ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from adverse changes in:
•
foreign exchange rates;
•
interest rates; and
•
commodity prices.
Foreign Exchange
Foreign currency fluctuations may impact the financial results we report for the portions of our business that operate in functional currencies other than the U.S. dollar. Our operations outside of the U.S. represented 39.1% and 32.8% of our revenue during 2016 and 2015, respectively. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a 4% change in our consolidated revenue and a 3% change in our operating income for the year ended December 31, 2016. See our Results of Operations discussion in Item 7 of this Annual Report on Form 10-K for additional information regarding the impact of fluctuations in exchange rates on our year over year results.
Additionally, we are exposed to foreign currency fluctuations with respect to the purchase of aftermarket products from foreign countries, primarily in Europe and Asia. To the extent that our inventory purchases are not denominated in the functional currency of the purchasing location, we are exposed to exchange rate fluctuations. In several of our operations, we purchase inventory from manufacturers in Taiwan in U.S. dollars, which exposes us to fluctuations in the relationship between the local functional currency and the U.S. dollar, as well as fluctuations between the U.S. dollar and the Taiwan dollar. We hedge our exposure to foreign currency fluctuations related to a portion of inventory purchases in our Europe operations, but the notional amount and fair value of these foreign currency forward contracts at December 31, 2016 were immaterial. We do not currently attempt to hedge foreign currency exposure related to our foreign currency denominated inventory purchases in our North America operations, and we may not be able to pass on any price increases to our customers.
Other than with respect to a portion of our foreign currency denominated inventory purchases, we do not hold derivative contracts to hedge foreign currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings we use to fund foreign acquisitions; however, our ability to use foreign currency denominated borrowings to finance our foreign operations may be limited based on local statutory tax laws. We have elected not to hedge the foreign currency risk related to the interest payments on foreign borrowings as we generate cash flows in the local currencies that can be used to fund debt payments. As of December 31, 2016, we had outstanding borrowings of €500.0 million under our Euro Notes, and £118.7 million, CAD $130.4 million, SEK 116.0 million, and €11.0 million under our revolving credit facilities.
Interest Rates
Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facilities, where interest rates are tied to the prime rate, LIBOR or CDOR. Therefore, we implemented a policy to manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use of interest rate swap contracts. These contracts convert a portion of our variable rate debt to fixed rate debt, matching the currency, effective dates and maturity dates to specific debt instruments. Net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense. All of our interest rate swap contracts have been executed with banks that we believe are creditworthy (Wells Fargo Bank, N.A.; Bank of America, N.A.; Citizens, N.A.; Fifth Third Bank; HSBC Bank USA, N.A; and Banco Bilbao Vizcaya Argentaria, S.A.).
As of December 31, 2016, we held ten interest rate swap contracts representing a total of $590 million of U.S. dollar-denominated notional amount debt. Our interest rate swap contracts are designated as cash flow hedges and modify the variable rate nature of that portion of our variable rate debt. These swaps have maturity dates ranging from January 2021 through June 2021. As of December 31, 2016, the fair value of the interest rate swap contracts was an asset of $16.4 million. The values of such contracts are subject to changes in interest rates.
In addition to these interest rate swaps, in 2016 we entered into three cross currency swap agreements for a total notional amount of $422.4 million (€400 million) with maturity dates in January 2021. These cross currency swaps contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps are intended to eliminate uncertainty in cash flows in U.S. dollars and euros in connection with intercompany financing arrangements. The cross currency swaps were also executed with banks we believe are creditworthy (Wells Fargo Bank, N.A.; Bank of America, N.A.; and The Bank of Tokyo-Mitsubishi UFJ, Ltd.). As of December 31, 2016, the fair value of the interest rate swap components of the cross currency swaps was an asset of $1.5 million, and the fair value

55


of the currency forward components was a liability of $3.1 million. The values of these contracts are subject to changes in interest rates and foreign currency exchange rates.
In total, we had 48% of our variable rate debt under our credit facilities at fixed rates at December 31, 2016 compared to 29% at December 31, 2015. See Note 9, "Long-Term Obligations " and Note 10, "Derivative Instruments and Hedging Activities " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
At December 31, 2016, we had $1.2 billion of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $11.8 million over the next twelve months.
Commodity Prices
We are exposed to market risk related to price fluctuations in scrap metal and other metals. Market prices of these metals affect the amount that we pay for our inventory as well as the revenue that we generate from sales of these metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost changes, and there is no guarantee that the vehicle costs will decrease at the same rate as the metal prices. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling metals prices, particularly when such prices move rapidly. Additionally, if market prices were to change at a greater rate than our vehicle acquisition costs, we could experience a positive or negative effect on our operating margin. Scrap metal prices have increased 44% since the fourth quarter of 2015.
    






56


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

*****
INDEX TO FINANCIAL STATEMENTS
 
Page
LKQ CORPORATION AND SUBSIDIARIES
 


57


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2016 and 2015 , and the related consolidated statements of income, comprehensive income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2016 . Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of LKQ Corporation and subsidiaries as of December 31, 2016 and 2015 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As described in Note 4 to the consolidated financial statements, effective January 1, 2016, the Company adopted Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting."
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2016 , based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/    DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 2017


58


LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue
$
8,584,031

 
$
7,192,633

 
$
6,740,064

Cost of goods sold
5,232,328

 
4,359,104

 
4,088,151

Gross margin
3,351,703

 
2,833,529

 
2,651,913

Facility and warehouse expenses
688,918

 
556,041

 
526,291

Distribution expenses
683,812

 
602,897

 
577,341

Selling, general and administrative expenses
986,380

 
828,333

 
762,888

Restructuring and acquisition related expenses
37,762

 
19,511

 
14,806

Depreciation and amortization
191,433

 
122,120

 
120,719

Operating income
763,398

 
704,627

 
649,868

Other expense (income):
 
 
 
 
 
Interest expense
88,263

 
57,860

 
64,542

Loss on debt extinguishment
26,650

 
—

 
324

Gain on foreign exchange contracts - acquisition related
(18,342
)
 
—

 
—

Gain on bargain purchase
(8,207
)
 
—

 
—

Interest and other income, net
(2,247
)
 
(2,263
)
 
(2,886
)
Total other expense, net
86,117

 
55,597

 
61,980

Income from continuing operations before provision for income taxes
677,281

 
649,030

 
587,888

Provision for income taxes
220,566

 
219,703

 
204,264

Equity in earnings (loss) of unconsolidated subsidiaries
(592
)
 
(6,104
)
 
(2,105
)
Income from continuing operations
456,123

 
423,223

 
381,519

Income from discontinued operations, net of tax
7,852

 
—

 
—

Net income
$
463,975

 
$
423,223

 
$
381,519

Basic earnings per share:
 
 
 
 
 
Income from continuing operations
$
1.49

 
$
1.39

 
$
1.26

Income from discontinued operations
0.03

 
—

 
—

Net income  (1)
$
1.51

 
$
1.39

 
$
1.26

Diluted earnings per share:
 
 
 
 
 
Income from continuing operations
$
1.47

 
$
1.38

 
$
1.25

Income from discontinued operations
0.03

 
—

 
—

Net income (1)
$
1.50

 
$
1.38

 
$
1.25

(1) The sum of the individual earnings per share amounts may not equal the total due to rounding.


Consolidated Statements of Comprehensive Income
(In thousands)
 
Year Ended December 31,
 
2016
 
2015
 
2014
Net income
$
463,975

 
$
423,223

 
$
381,519

Other comprehensive (loss) income:
 
 
 
 
 
Foreign currency translation
(175,639
)
 
(69,817
)
 
(51,979
)
Net change in unrecognized gains/losses on derivative instruments, net of tax
9,023

 
2,469

 
2,195

Net change in unrealized gains/losses on pension plans, net of tax
4,911

 
2,103

 
(10,452
)
Total other comprehensive loss
(161,705
)
 
(65,245
)
 
(60,236
)
Total comprehensive income
$
302,270

 
$
357,978

 
$
321,283


The accompanying notes are an integral part of the consolidated financial statements.
59



LKQ CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
 
December 31,
 
2016
 
2015
Assets
 
 
 
Current Assets:
 
 
 
Cash and equivalents
$
227,400

 
$
87,397

Receivables, net
860,549

 
590,160

Inventories
1,935,237

 
1,556,552

Prepaid expenses and other current assets
87,768

 
106,603

Assets of discontinued operations
456,640

 
—

Total Current Assets
3,567,594

 
2,340,712

Property and Equipment, net
811,576

 
696,567

Intangible Assets:
 
 
 
Goodwill
3,054,769

 
2,319,246

Other intangibles, net
584,231

 
215,117

Equity Method Investments
183,467

 
2,755

Other Assets
101,562

 
73,440

Total Assets
$
8,303,199

 
$
5,647,837

Liabilities and Stockholders’ Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
633,773

 
$
415,588

Accrued expenses:
 
 
 
Accrued payroll-related liabilities
118,755

 
86,527

Self-insurance reserves
39,548

 
37,759

Other accrued expenses
169,553

 
124,466

Other current liabilities
37,943

 
31,596

Current portion of long-term obligations
66,109

 
56,034

Liabilities of discontinued operations
145,104

 
—

Total Current Liabilities
1,210,785

 
751,970

Long-Term Obligations, Excluding Current Portion
3,275,662

 
1,528,668

Deferred Income Taxes
199,657

 
127,239

Other Noncurrent Liabilities
174,146

 
125,278

Commitments and Contingencies

 

Stockholders’ Equity:
 
 
 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 307,544,759 and 305,574,384 shares issued and outstanding at December 31, 2016 and 2015, respectively
3,075

 
3,055

Additional paid-in capital
1,116,690

 
1,090,713

Retained earnings
2,590,359

 
2,126,384

Accumulated other comprehensive loss
(267,175
)
 
(105,470
)
Total Stockholders' Equity
3,442,949

 
3,114,682

Total Liabilities and Stockholders’ Equity
$
8,303,199

 
$
5,647,837





The accompanying notes are an integral part of the consolidated financial statements.
60



LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
 
Year Ended December 31,
 
2016
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net income
$
463,975

 
$
423,223

 
$
381,519

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
206,086

 
128,192

 
125,437

Stock-based compensation expense
22,472

 
21,336

 
22,021

Loss on debt extinguishment
26,650

 
—

 
324

Impairment on net assets of discontinued operations
26,677

 
—

 
—

Gain on foreign exchange contracts - acquisition related
(18,342
)
 
—

 
—

Gain on bargain purchase
(8,207
)
 
—

 
—

Deferred income taxes
(16,162
)
 
22,388

 
6,242

Other
19,550

 
7,348

 
6,269

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
 
 
Receivables, net
(50,801
)
 
14,704

 
(61,739
)
Inventories
(64,114
)
 
(83,188
)
 
(122,590
)
Prepaid income taxes/income taxes payable
14,944

 
17,474

 
18,428

Accounts payable
18,577

 
(4,222
)
 
(5,474
)
Other operating assets and liabilities
(6,291
)
 
(2,973
)
 
18,274

Net cash provided by operating activities
635,014

 
544,282

 
388,711

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Purchases of property and equipment
(207,074
)
 
(170,490
)
 
(140,950
)
Acquisitions, net of cash acquired
(1,349,339
)
 
(160,517
)
 
(775,921
)
Investments in unconsolidated subsidiaries
(185,671
)
 
(9,682
)
 
(2,240
)
Proceeds from foreign exchange contracts
18,342

 
—

 
—

Other investing activities, net
13,814

 
10,696

 
(1,883
)
Net cash used in investing activities
(1,709,928
)
 
(329,993
)
 
(920,994
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Proceeds from exercise of stock options
7,963

 
8,168

 
9,324

Taxes paid related to net share settlements of stock-based compensation awards
(4,438
)
 
(7,581
)
 
(443
)
Debt issuance costs
(16,554
)
 
(97
)
 
(3,750
)
Proceeds from issuance of Euro notes
563,450

 
—

 
—

Borrowings under revolving credit facilities
2,636,596

 
313,142

 
1,587,644

Repayments under revolving credit facilities
(1,748,664
)
 
(445,282
)
 
(1,098,518
)
Borrowings under term loans
582,115

 
—

 
11,250

Repayments under term loans
(255,792
)
 
(22,500
)
 
(16,875
)
Borrowings under receivables securitization facility
106,400

 
3,858

 
95,050

Repayments under receivables securitization facility
(69,400
)
 
(35,758
)
 
(150
)
Repayments of other debt, net
(31,156
)
 
(29,696
)
 
(40,051
)
Payments of Rhiag debt and related payments
(543,347
)
 
—

 
—

Payments of other obligations
(1,436
)
 
(22,791
)
 
(41,992
)
Other financing activities, net
—

 
—

 
(300
)
Net cash provided by (used in) financing activities
1,225,737

 
(238,537
)
 
501,189

Effect of exchange rate changes on cash and equivalents
(3,704
)
 
(2,960
)
 
(4,789
)
Net increase (decrease) in cash and equivalents
147,119

 
(27,208
)
 
(35,883
)
Cash and equivalents, beginning of period
87,397

 
114,605

 
150,488

Cash and equivalents of continuing and discontinued operations, end of period
234,516

 
87,397

 
114,605

Less: Cash and equivalents of discontinued operations, end of period
(7,116
)
 
—

 
—

Cash and equivalents, end of period
$
227,400

 
$
87,397

 
$
114,605

Supplemental disclosure of cash paid for:
 
 
 
 
 
Income taxes, net of refunds
$
230,036

 
$
180,126

 
$
176,955

Interest
86,021

 
54,917

 
59,678

Supplemental disclosure of noncash investing and financing activities:
 
 
 
 
 
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions
568,032

 
$
28,348

 
$
96,258

Non-cash property and equipment additions
10,715

 
8,846

 
2,293

Contingent consideration liabilities
—

 
—

 
5,854


The accompanying notes are an integral part of the consolidated financial statements.
61



LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands)
 
Common Stock
 
Additional Paid-In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Stockholders' Equity
 
Shares
Issued
 
Amount
 
BALANCE, January 1, 2014
300,805

 
$
3,008

 
$
1,006,084

 
$
1,321,642

 
$
20,011

 
$
2,350,745

Net income
—

 
—

 
—

 
381,519

 
—

 
381,519

Other comprehensive loss
—

 
—

 
—

 
—

 
(60,236
)
 
(60,236
)
Restricted stock units vested
975

 
10

 
(10
)
 
—

 
—

 
—

Stock-based compensation expense
—

 
—

 
22,021

 
—

 
—

 
22,021

Exercise of stock options
1,688

 
17

 
9,307

 
—

 
—

 
9,324

Tax withholdings related to net share settlements of stock-based compensation awards
(15
)
 
—

 
(443
)
 
—

 
—

 
(443
)
Excess tax benefit from stock-based payments
—

 
—

 
17,727

 
—

 
—

 
17,727

BALANCE, December 31, 2014
303,453

 
$
3,035

 
$
1,054,686

 
$
1,703,161

 
$
(40,225
)
 
$
2,720,657

Net income
—


—


—


423,223


—


423,223

Other comprehensive loss
—


—


—


—


(65,245
)

(65,245
)
Restricted stock units vested, net of shares withheld for employee tax
840


8


(4,349
)

—


—


(4,341
)
Stock-based compensation expense
—


—


21,336


—


—


21,336

Exercise of stock options
1,425


14


8,849


—


—


8,863

Tax withholdings related to net share settlements of stock-based compensation awards
(144
)
 
(2
)
 
(3,934
)
 
—

 
—

 
(3,936
)
Excess tax benefit from stock-based payments
—


—


14,125


—


—


14,125

BALANCE, December 31, 2015
305,574

 
$
3,055

 
$
1,090,713

 
$
2,126,384

 
$
(105,470
)
 
$
3,114,682

Net income
—

 
—

 
—

 
463,975

 
—

 
463,975

Other comprehensive loss
—

 
—

 
—

 
—

 
(161,705
)
 
(161,705
)
Restricted stock units vested, net of shares withheld for employee tax
847

 
9

 
(4,447
)
 
—

 
—

 
(4,438
)
Stock-based compensation expense
—

 
—

 
22,472

 
—

 
—

 
22,472

Exercise of stock options
1,124

 
11

 
7,952

 
—

 
—

 
7,963

BALANCE, December 31, 2016
307,545

 
$
3,075

 
$
1,116,690

 
$
2,590,359

 
$
(267,175
)
 
$
3,442,949



The accompanying notes are an integral part of the consolidated financial statements.
62



LKQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.
Business
The financial statements presented in this report represent the consolidation of LKQ Corporation, a Delaware corporation, and its subsidiaries. LKQ Corporation is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.
We are the nation’s largest provider of alternative vehicle collision replacement products and a leading provider of alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in the United Kingdom, the Benelux region of continental Europe, Italy and Eastern Europe. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end of life vehicles. In total, we operate more than 1,300 facilities.

Note 2. Business Combinations
On March 18, 2016, LKQ acquired Rhiag, a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain. This acquisition expanded LKQ's geographic presence in continental Europe. We believe the acquisition will generate potential purchasing synergies. Total acquisition date fair value of the consideration for our Rhiag acquisition was €534.2 million ( $602.0 million ), composed of €533.6 million ( $601.4 million ) of cash paid (net of cash acquired) and €0.6 million ( $0.6 million ) of intercompany balances considered to be effectively settled as part of the transaction. In addition, we assumed €488.8 million ( $550.8 million ) of existing Rhiag debt as of the acquisition date.
Related to the funding of the purchase price of the Rhiag acquisition, LKQ entered into foreign currency forward contracts in March 2016 to acquire a total of €588 million . The rates locked in under the foreign currency forwards were favorable to the spot rate on the settlement date, and as a result, these derivative contracts generated a gain of $18.3 million during the year ended December 31, 2016. The gain on the foreign currency forwards was recorded in Gains on foreign exchange contracts - acquisition related on our consolidated statement of income for the year ended December 31, 2016 .     
We recorded $585.4 million of goodwill related to our acquisition of Rhiag, which we do not expect to be deductible for income tax purposes. In the period between the acquisition date and December 31, 2016 , Rhiag, which is reported in our Europe reportable segment, generated revenue of $854.2 million and operating income of $25.5 million , which included $10.9 million of acquisition related costs.
On April 21, 2016, LKQ acquired PGW. At acquisition, PGW’s business comprised wholesale and retail distribution services and automotive glass manufacturing. The acquisition expanded our addressable market in North America and globally. Additionally, we believe the acquisition will create potential distribution synergies with our existing network. Total acquisition date fair value of the consideration for our PGW acquisition was $661.7 million , consisting of cash paid (net of cash acquired). We recorded $205.1 million of goodwill related to our acquisition of PGW, of which we expect $104.0 million to be deductible for income tax purposes. In the period between the acquisition date and December 31, 2016 , PGW generated revenue of $706.8 million and operating income of $10.7 million , which included $2.1 million of acquisition related costs. Of these amounts, $498.2 million of revenue, net of intercompany sales to PGW's aftermarket business, and $25.1 million of o perating income relate to the portion of the automotive glass manufacturing business classified as discontinued operations as of December 31, 2016. Refer to Note 3, "Discontinued Operations " for further information. The $14.3 million operating loss generated in 2016 by the aftermarket portion of our PGW operations primarily relates to incremental costs related to shared corporate expenses that are not expected to reoccur after the sale of the glass manufacturing business closes, a non-recurring inventory step-up adjustment recorded upon acquisition, and higher cost products sourced from the glass manufacturing side of the business, which reduced our gross margin.
On October 4, 2016, we acquired substantially all of the business assets of Andrew Page out of receivership. Andrew Page is a distributor of aftermarket automotive parts in the United Kingdom, and the acquisition is subject to customary regulatory approval from the Competition and Markets Authority in the U.K. Total acquisition date fair value of the consideration for our Andrew Page acquisition was £16.4 million  ( $20.9 million ). In connection with the acquisition, we recorded a gain on bargain purchase of $8.2 million , which is recorded on a separate line in our consolidated statement of income for the year ended December 31, 2016 . We believe that we were able to acquire the net assets of Andrew Page for less than fair value as a result of (i) Andrew Page's financial difficulties which put the company into receivership prior to our acquisition and (ii) a motivated seller that desired to complete the sale in an expedient manner to ensure continuity of the business. We continue to evaluate the purchase price allocation, including the opening value of inventory, fixed assets,

63


intangible assets, accrued liabilities, and deferred taxes, which may require us to adjust the recorded gain. In the period between the acquisition date and December 31, 2016 , Andrew Page generated revenue of $38.9 million and an operating loss of $6.5 million .
In addition to our acquisitions of Rhiag, PGW and Andrew Page, we acquired 7 wholesale businesses in Europe and 5 wholesale businesses in North America during the year ended December 31, 2016 . We typically fund our acquisitions using borrowings under our credit facilities or other financing arrangements. Total acquisition date fair value of the consideration for these acquisitions was $76.1 million , composed of $67.8 million of cash paid (net of cash acquired), $4.1 million of notes payable and $4.2 million of other purchase price obligations. During the year ended December 31, 2016, we recorded  $52.3 million  of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2015 acquisitions. We expect that substantially all of the goodwill recorded for these acquisitions will not be deductible for income tax purposes. In the period between the acquisition dates and  December 31, 2016 , these acquisitions generated revenue of  $35.4 million  and operating income of $1.5 million .
During the year ended December 31, 2015 , we completed  18 acquisitions, including  4  wholesale businesses in North America,  12  wholesale businesses in Europe, a self service retail operation, and a specialty vehicle aftermarket business. Our wholesale business acquisitions in North America included Parts Channel, an aftermarket collision parts distributor. We also acquired Coast, a specialty aftermarket business that distributes replacement parts, supplies and accessories in North America for the RV and outdoor recreation markets. Our European acquisitions included 11  aftermarket parts distribution businesses in the Netherlands,  9  of which were former customers of and distributors for our Netherlands subsidiary, Sator, and were acquired with the objective of expanding our distribution network in the Netherlands. Our other acquisitions completed during the year ended December 31, 2015  enabled us to expand our geographic presence. Total acquisition date fair value of the consideration for these acquisitions was $ 187.9 million , composed of  $161.3 million  of cash (net of cash acquired),  $4.3 million  of notes payable,  $21.2 million  of other purchase price obligations, and $1.1 million of pre-existing balances between us and the acquired entities considered to be effectively settled as a result of the acquisitions. During the year ended December 31, 2015 , we recorded $92.2 million  of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2014 acquisitions. We expect $ 69.9 million of the  $92.2 million  of goodwill recorded to be deductible for income tax purposes. In the period between the acquisition dates and  December 31, 2015 , these acquisitions generated revenue of  $159.6 million  and net income of $4.5 million .
On January 3, 2014, we completed our acquisition of Keystone Specialty, which is a leading distributor and marketer of specialty vehicle aftermarket equipment and accessories in North America. This acquisition enabled us to expand into new product lines and enter new markets. Total acquisition date fair value of the consideration for our Keystone Specialty acquisition was $471.9 million , composed of $427.1 million of cash (net of cash acquired), $31.5 million of notes payable and $13.4 million of other purchase price obligations (non-interest bearing). We recorded $237.7 million of goodwill related to our acquisition of Keystone Specialty, which we do not expect to be deductible for income tax purposes.
In addition to our acquisition of Keystone Specialty, we made 22 acquisitions during 2014, including 9 wholesale businesses in North America, 9 wholesale businesses in Europe, 2 self service retail operations, and 2 specialty vehicle aftermarket businesses. Our European acquisitions included 7 aftermarket parts distribution businesses in the Netherlands, 5 of which were customers of and distributors for our Netherlands subsidiary, Sator. Our European acquisitions were completed with the objective of aligning our Netherlands and U.K. distribution models; our other acquisitions completed during the year ended December 31, 2014 enabled us to expand in existing markets, introduce new product lines, and enter new markets. Total acquisition date fair value of the consideration for these additional acquisitions was $359.1 million , composed of $334.3 million of cash (net of cash acquired), $13.5 million of notes payable, $0.3 million of other purchase price obligations (non-interest bearing), $5.9 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $8.3 million ), and $5.1 million of pre-existing balances between us and the acquired entities considered to be effectively settled as a result of the acquisitions. During the year ended December 31, 2014, we recorded $178.0 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2013 acquisitions. We expect $44.2 million of the $178.0 million of goodwill recorded to be deductible for income tax purposes.
Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair market values at the dates of acquisition. The purchase price allocations for certain of our 2016 acquisitions are preliminary as we are in the process of determining the following: 1) valuation amounts for certain receivables, inventories and fixed assets acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of certain liabilities assumed; and 4) the final estimation of the tax basis of the entities acquired. We have recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the valuations. From the date of our preliminary allocation for Rhiag in the first quarter of 2016 through December 31, 2016 , we recorded adjustments based on our valuation procedures for our acquisition of Rhiag that resulted in the allocation of $154.3

64


million of goodwill to acquired assets, primarily intangible assets and property, plant and equipment. Additionally, from the date of our preliminary allocation for PGW in the second quarter of 2016 through December 31, 2016, we recorded adjustments based on our valuation procedures that resulted in a $21.1 million increase to goodwill recorded for our PGW acquisition; this was primarily attributable to a decline in the value allocated to property, plant and equipment, partially offset by an increase in the value allocated to deferred taxes. The income statement impact of these measurement period adjustments for PGW that would have been recorded in previous periods if the adjustment had been recognized as of the acquisition date was $4.8 million , of which $4.0 million was related to discontinued operations. The income statement effect of the Rhiag measurement period adjustments that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date was immaterial. The balance sheet impact and income statement effect of other measurement-period adjustments recorded for acquisitions completed in prior periods was immaterial.
The purchase price allocations for the acquisitions completed during 2016 and 2015 are as follows (in thousands):
 
 
Year Ended
 
Year Ended
 
December 31, 2016
 
December 31, 2015
 
Rhiag
 
PGW (1)
 
Other
Acquisitions
 
Total
 
All Acquisitions
Receivables
$
230,670

 
$
136,523

 
$
13,216

 
$
380,409

 
$
29,628

Receivable reserves
(28,242
)
 
(7,135
)
 
(794
)
 
(36,171
)
 
(3,926
)
Inventories (2)
239,529

 
169,159

 
62,223

 
470,911

 
79,646

Prepaid expenses and other current assets
10,793

 
42,573

 
4,445

 
57,811

 
3,337

Property and equipment
56,774

 
225,645

 
17,140

 
299,559

 
11,989

Goodwill
585,415

 
205,058

 
52,336

 
842,809

 
92,175

Other intangibles
429,360

 
37,954

 
2,537

 
469,851

 
9,926

Other assets (3)
2,092

 
57,671

 
(133
)
 
59,630

 
5,166

Deferred income taxes
(110,791
)
 
17,506

 
(1,000
)
 
(94,285
)
 
4,102

Current liabilities assumed
(239,665
)
 
(168,332
)
 
(42,290
)
 
(450,287
)
 
(39,191
)
Debt assumed
(550,843
)
 
(4,027
)
 
(2,378
)
 
(557,248
)
 
(2,365
)
Other noncurrent liabilities assumed
(23,085
)
 
(50,847
)
 
(103
)
 
(74,035
)
 
(2,651
)
Other purchase price obligations
—

 
—

 
(6,698
)
 
(6,698
)
 
(21,199
)
Notes issued
—

 
—

 
(4,087
)
 
(4,087
)
 
(4,296
)
Settlement of pre-existing balances
(591
)
 
—

 
(32
)
 
(623
)
 
(1,073
)
Gain on bargain purchase
—

 
—

 
(8,207
)
 
(8,207
)
 
—

Cash used in acquisitions, net of cash acquired
$
601,416

 
$
661,748

 
$
86,175

 
$
1,349,339


$
161,268


(1) Includes both continuing and discontinued operations of PGW.
(2) The PGW inventory balance includes the impact of a $9.8 million step-up adjustment to report the inventory at its fair value.
(3) The balance for PGW includes $23.6 million of investments in unconsolidated subsidiaries which relate to the discontinued portion of our PGW operations.
The fair value of our intangible assets is based on a number of inputs including projections of future cash flows, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs. The fair value of our property and equipment is determined using inputs such as market comparables and current replacement or reproduction costs of the asset, adjusted for physical, functional and economic factors; these adjustments to arrive at fair value are not observable in the market and therefore, these inputs are considered to be Level 3 inputs.
Other noncurrent liabilities recorded for our acquisitions of Rhiag and PGW includes a liability for certain pension and other post-retirement obligations we assumed with the acquisitions. A portion of PGW's liability for pension and post-retirement obligations relates to the glass manufacturing operations business, which is classified as discontinued operations, and is recorded within Liabilities of discontinued operations on our consolidated balance sheets; these amounts will be included in the net assets disposed as part of the pending sale of the business, which we expect to occur in the first quarter of 2017. Due

65


to the immateriality of these plans, we have not provided the detailed disclosures otherwise prescribed by the accounting guidance on pensions and other post-retirement obligations.
The primary objectives of our acquisitions made during the year ended December 31, 2016 and the year ended December 31, 2015 were to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths. Our 2016 acquisition of Rhiag enabled us to expand our market presence in continental Europe. We believe that our Rhiag acquisition will allow for synergies within our European operations, most notably in procurement, and these projected synergies contributed to the goodwill recorded on the Rhiag acquisition. The aftermarket glass distribution business of PGW, which is included within continuing operations, enabled us to enter into new product lines and increase the size of our addressable market. In addition, we believe that our PGW acquisition will allow for distribution synergies with our existing network in North America, which contributed to the goodwill recorded on the acquisition.
Our 2014 acquisition of Keystone Specialty allowed us to enter into new product lines and increase the size of our addressable market. In addition, the acquisition created logistics and administrative cost synergies as well as cross-selling opportunities, which contributed to the goodwill recorded on the Keystone Specialty acquisition.
When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provide a fit with our existing operations, and strong cash flows. For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity. In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill.


66


The following pro forma summary presents the effect of the businesses acquired during the year ended December 31, 2016 as though the businesses had been acquired as of January 1, 2015 , the businesses acquired during the year ended December 31, 2015 as though they had been acquired as of January 1, 2014 and the businesses acquired during the year ended December 31, 2014 as though they had been acquired as of January 1, 2013 . The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue, as reported
$
8,584,031

 
$
7,192,633

 
$
6,740,064

Revenue of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Rhiag
213,376

 
994,903

 
—

PGW (1)
102,540

 
339,012

 
—

Keystone Specialty
—

 
—

 
3,443

Other acquisitions
265,717

 
615,140

 
676,965

Pro forma revenue
$
9,165,664

 
$
9,141,688

 
$
7,420,472

 
 
 
 
 
 
Income from continuing operations, as reported
$
456,123

 
$
423,223

 
$
381,519

Income from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
 
 
 
 
 
Rhiag
(662
)
 
10,310

 
—

PGW (1),(2)
7,574

 
3,334

 
—

Keystone Specialty
—

 
—

 
521

Other acquisitions (3)
(807
)
 
15,266

 
18,371

Acquisition related expenses, net of tax (4)
11,034

 
1,830

 
2,295

Pro forma income from continuing operations
$
473,262

 
$
453,963

 
$
402,706

 
 
 
 
 
 
Earnings per share from continuing operations, basic - as reported
$
1.49

 
$
1.39

 
$
1.26

Effect of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Rhiag
(0.00)

 
0.03

 
—

PGW (1),(2)
0.02

 
0.01

 
—

Keystone Specialty
—

 
—

 
0.00

Other acquisitions
(0.00)

 
0.05

 
0.06

Acquisition related expenses, net of tax (4)
0.04

 
0.01

 
0.01

Pro forma earnings per share from continuing operations, basic (5)  
$
1.54

 
$
1.49

 
$
1.33

 
 
 
 
 
 
Earnings per share from continuing operations, diluted - as reported
$
1.47

 
$
1.38

 
$
1.25

Effect of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Rhiag
(0.00)

 
0.03

 
—

PGW (1),(2)
0.02

 
0.01

 
—

Keystone Specialty
—

 
—

 
0.00

Other acquisitions
(0.00)

 
0.05

 
0.06

Acquisition related expenses, net of tax (4)
0.04

 
0.01

 
0.01

Pro forma earnings per share from continuing operations, diluted (5)  
$
1.53

 
$
1.48

 
$
1.31

(1) PGW reflects the results for the continuing aftermarket glass distribution business only.
(2) Excludes $17.8 million and $5.4 million of corporate costs for 2015 and 2016, respectively, that we do not expect to incur going forward as a result of the sale of our glass manufacturing business.
(3) The 2014 pro forma impact of our other acquisitions includes an adjustment for intercompany sales between Sator and the five Netherlands distributors that would have been reflected as intercompany transactions if the acquisitions had occurred on January 1, 2013. Our cost of sales in the initial months after the acquisitions reflects the increased valuation of acquired inventory, which has the impact of temporarily reducing our gross margin. Moving this negative gross margin impact

67


to the year ended December 31, 2013 for our pro forma disclosure has the effect of increasing our pro forma net income during the year ended December 31, 2014.
(4) Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed.
(5) The sum of the individual earnings per share amounts may not equal the total due to rounding.
Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value, adjustments to depreciation on acquired property and equipment, adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects. These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results.

Note 3. Discontinued Operations
On December 18, 2016, LKQ entered into a Stock and Asset Purchase Agreement (the “Agreement”) to sell the glass manufacturing business of its PGW subsidiary to a subsidiary of Vitro S.A.B. de C.V. (Vitro) for a sale price of $310 million , subject to potential post-closing purchase price adjustments. The transaction, which is subject to customary representations and warranties, covenants and conditions, and regulatory approvals, is expected to close in the first quarter of 2017. As a result of this transaction, the remaining portion of the Glass operating segment will be combined with our Wholesale - North America operations during 2017. For our reporting as of December 31, 2016, we have aggregated the remaining Glass operating segment with our North America reportable segment. See Note 14, "Segment and Geographic Information " for further information.
Upon execution of the Agreement, LKQ concluded that the glass manufacturing business met the criteria to be classified as held for sale in LKQ’s consolidated financial statements. As a result, the assets related to the glass manufacturing business are reflected on the Consolidated Balance Sheet at the lower of the net asset carrying value or fair value less cost to sell.  The fair value of the assets was determined using the negotiated sale price as an indicator of fair value, which is considered a Level 2 input as it is observable in a non-active market.
As part of the Agreement, the Company and Vitro entered into a twelve-month Transition Services Agreement with two six-month renewal periods, a three-year Purchase and Supply Agreement, and an Intellectual Property Agreement.
The following table summarizes the operating results of the Company’s discontinued operations related to the purchase agreement above from the date of acquisition, April 21, 2016, through the year ended December 31, 2016, as presented in “Income from discontinued operations, net” on the Consolidated Statements of Income:
 
Period from April 21 to December 31,
 
 
2016
 
Revenue
$
498,233

 
Cost of goods sold
(424,161
)
 
Operating expenses
(22,330
)
 
Impairment on net assets of discontinued operations
(26,677
)
(1)  
    Operating income
25,065

 
Interest and other expenses, net
(9,136
)
(2)  
    Income from discontinued operations before taxes
15,929

 
Provision for taxes
(8,252
)
 
Equity in earnings of unconsolidated subsidiaries
175

 
    Income from discontinued operations, net of tax
$
7,852

 
(1) Upon recognition of the glass manufacturing business net assets as held for sale, an impairment test was performed on the net assets of the glass manufacturing business resulting in a pre-tax impairment loss of $26.7 million and a tax benefit of $6.9 million . The impairment represents a $21.1 million impairment on long-lived assets, with the remaining $5.6 million representing a valuation allowance on the current assets held for sale.
(2) The Company elected to allocate interest expense to discontinued operations based on the expected debt to be repaid. Under this approach, allocated interest from the date of acquisition through the year ended December 31, 2016 was $6.2 million . The remaining balance represents other expense.

68


The glass manufacturing business had $64.4 million of operating cash inflows, $28.6 million of investing cash outflows and $1.0 million of capital lease debt payments. The following table summarizes the significant non-cash operating activities, capital expenditures and investments in unconsolidated subsidiaries of the Company’s discontinued operations related to the glass manufacturing business:
 
Period from April 21 to December 31,
 
2016
Non-cash operating activities:
 
      Depreciation and amortization
$
7,752

      Impairment on net assets of discontinued operations
26,677

      Deferred income taxes
(4,516
)
Capital expenditures
(24,156
)
Investments in unconsolidated subsidiaries
(4,400
)


The major classes of assets and liabilities related to the glass manufacturing business are as follows:
 
December 31, 2016
Cash and equivalents
$
7,116

Receivables, net
77,442

Inventories
71,952

Prepaid expenses and other current assets
42,426

Property, plant and equipment, net
199,136

Other assets
64,166

Valuation allowance
(5,598
)
Total assets from discontinued operations
$
456,640

 
 
Accounts payable
$
72,696

Other current liabilities
37,104

Long-term obligations
1,648

Other noncurrent liabilities (includes pension and post-retirement obligations)
33,656

Total liabilities from discontinued operations
145,104

Net assets from discontinued operations
$
311,536


Pursuant to the Purchase and Supply Agreement, the glass manufacturing business will supply the aftermarket business of PGW with various OEM products annually for a three year period beginning on the date the transaction closes. For the period from April 21, 2016 through December 31, 2016, intercompany sales between the glass manufacturing business and the continuing aftermarket business of PGW which were eliminated in consolidation were $29.4 million .

Note 4. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

69


Revenue Recognition
The majority of our revenue is derived from the sale of vehicle parts. Revenue is recognized when the products are shipped to, delivered to or picked up by customers and title has transferred, subject to an allowance for estimated returns, discounts and allowances that we estimate based upon historical information. We recorded a reserve for estimated returns, discounts and allowances of approximately $38.3 million and $32.8 million at December 31, 2016 and 2015 , respectively. We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue on our Consolidated Statements of Income and are shown as a current liability on our Consolidated Balance Sheets until remitted. We recognize revenue from the sale of scrap metal, other metals and cores when title has transferred, which typically occurs upon delivery to the customer. Revenue also includes amounts billed to customers for shipping and handling. Distribution expenses in the accompanying Consolidated Statements of Income are the costs incurred to prepare and deliver products to customers.
Receivables and Allowance for Doubtful Accounts
In the normal course of business, we extend credit to customers after a review of each customer's credit history. We recorded a reserve for uncollectible accounts of approximately $45.6 million and $24.6 million at December 31, 2016 and 2015 , respectively. The reserve is based upon the aging of the accounts receivable, our assessment of the collectability of specific customer accounts and historical experience. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously written off are recorded when received. Our March 2016 acquisition of Rhiag and our April 2016 acquisition of PGW contributed $23.0 million and $1.4 million , respectively, to our reserve for uncollectible accounts. See Note 2, "Business Combinations " for further information on our acquisitions.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our cash and equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.
Inventories
We classify our inventory into the following categories: (i) aftermarket and refurbished products and (ii) salvage and remanufactured products.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. For all of our aftermarket products, excluding our aftermarket automotive glass products, cost is established based on the average price we pay for parts; for our aftermarket automotive glass products inventory, cost is established using the first-in first-out method. Inventory cost for all of our aftermarket products includes expenses incurred for freight in and overhead costs; for items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished products are parts that require cosmetic repairs, such as wheels, bumper covers and lights; LKQ will apply new parts, products or materials to these parts in order to produce the finished product. Refurbished inventory cost is based on the average price we pay for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing. The cost of our refurbished inventory also includes expenses incurred for freight in, labor and other overhead costs.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's number of days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured products are used parts that have been inspected, rebuilt, or reconditioned to restore functionality and performance, such as remanufactured engines and transmissions. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight in, direct manufacturing costs and overhead expenses.
For all inventory, carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand. If actual demand is lower than our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.

70


Inventories consist of the following (in thousands):
 
December 31,
 
2016
 
2015
Aftermarket and refurbished products
$
1,540,257

 
$
1,146,162

Salvage and remanufactured products
394,980

 
410,390

Total inventories
$
1,935,237

 
$
1,556,552

 
    Our acquisitions completed during 2016 , including our March 2016 acquisition of Rhiag and our April 2016 acquisition of PGW, contributed  $387.4 million  to our aftermarket and refurbished products inventory and  $5.7 million to our salvage and remanufactured products inventory. See Note 2, "Business Combinations " for further information on our acquisitions.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter.
Our estimated useful lives are as follows:
Land improvements
10-20 years
Buildings and improvements
20-40 years
Machinery and equipment
3-20 years
Computer equipment and software
3-10 years
Vehicles and trailers
3-10 years
Furniture and fixtures
5-7 years
Property and equipment consists of the following (in thousands):
 
December 31,
 
2016
 
2015
Land and improvements
$
127,211

 
$
118,420

Buildings and improvements
209,773

 
183,480

Machinery and equipment
429,446

 
355,313

Computer equipment and software
120,316

 
130,363

Vehicles and trailers
138,263

 
101,201

Furniture and fixtures
28,405

 
24,332

Leasehold improvements
152,356

 
140,732

 
1,205,770

 
1,053,841

Less—Accumulated depreciation
(495,644
)
 
(437,946
)
Construction in progress
101,450

 
80,672

Total property and equipment, net
$
811,576

 
$
696,567


We record depreciation expense within Depreciation and Amortization on our Consolidated Statements of Income. Additionally, included in Cost of Goods Sold on the Consolidated Statements of Income is depreciation expense associated with our refurbishing, remanufacturing, and furnace operations as well as our distribution centers. Total depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $114.8 million , $94.4 million , and $90.9 million , respectively.

71


Intangible Assets
Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as trade names, trademarks, customer and supplier relationships, software and other technology related assets, and covenants not to compete.
Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth quarters of 2016 , 2015 and 2014 . The results of all of these tests indicated that goodwill was not impaired. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We noted that the proximity of the PGW acquisition to the goodwill testing date resulted in a fair value estimate for the Glass aftermarket reporting unit that exceeded the carrying value by less than 10% . This aligns with our expectations as there has not been a significant change in the value of the business since the acquisition date while we continue to execute our integration plans.
The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):
 
North America
 
Europe
 
Specialty
 
Total
Balance as of January 1, 2014
$
1,358,937

 
$
578,507

 
$
—

 
$
1,937,444

Business acquisitions and adjustments to previously recorded goodwill
43,752

 
91,916

 
280,035

 
415,703

Exchange rate effects
(10,657
)
 
(53,604
)
 
9

 
(64,252
)
Balance as of December 31, 2014
$
1,392,032

 
$
616,819

 
$
280,044

 
$
2,288,895

Business acquisitions and adjustments to previously recorded goodwill
72,355

 
21,217

 
(1,397
)
 
92,175

Exchange rate effects
(18,537
)
 
(43,554
)
 
267

 
(61,824
)
Balance as of December 31, 2015
$
1,445,850

 
$
594,482

 
$
278,914

 
$
2,319,246

Business acquisitions and adjustments to previously recorded goodwill
226,483

 
614,437

 
1,889

 
842,809

Exchange rate effects
1,818

 
(108,943
)
 
(161
)
 
(107,286
)
Balance as of December 31, 2016
$
1,674,151

 
$
1,099,976

 
$
280,642

 
$
3,054,769


During the year ended December 31, 2016, we recorded $585.4 million of goodwill related to our acquisition of Rhiag and $205.1 million related to our acquisition of PGW. See Note 2, "Business Combinations" for further information on our acquisitions.
The components of other intangibles are as follows (in thousands):
 
December 31, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Trade names and trademarks
$
286,008

 
$
(51,104
)
 
$
234,904

 
$
172,219

 
$
(43,458
)
 
$
128,761

Customer and supplier relationships
395,284

 
(92,079
)
 
303,205

 
95,508

 
(41,007
)
 
54,501

Software and other technology related assets
77,329

 
(35,648
)
 
41,681

 
44,500

 
(17,844
)
 
26,656

Covenants not to compete
11,726

 
(7,285
)
 
4,441

 
10,774

 
(5,575
)
 
5,199

 
$
770,347

 
$
(186,116
)
 
$
584,231

 
$
323,001

 
$
(107,884
)
 
$
215,117

    

72


The components of other intangibles acquired during the years ended December 31, 2016 and 2015 include the following (in thousands):
 
Year Ended
 
Year Ended
 
December 31, 2016
 
December 31, 2015
 
Rhiag
 
PGW
 
Other Acquisitions
 
Total
 
All Acquisitions (1)
Trade names and trademarks
$
127,351

 
$
5,500

 
$
1,015

 
$
133,866

 
$
3,555

Customer and supplier relationships
291,893

 
29,700

 
—

 
321,593

 
4,601

Software and other technology related assets
10,116

 
1,154

 
1,420

 
12,690

 
1,213

Covenants not to compete
—

 
1,600

 
102

 
1,702

 
557

 
$
429,360

 
$
37,954

 
$
2,537

 
$
469,851

 
$
9,926

(1) I ncludes adjustments to certain preliminary intangible asset valuations from our 2014 acquisitions.
Our estimated useful lives for our finite lived intangible assets are as follows:
 
Method of Amortization
 
Useful Life
Trade names and trademarks
Straight-line
 
4-30 years
Customer and supplier relationships
Accelerated
 
4-20 years
Software and other technology related assets
Straight-line
 
3-6 years
Covenants not to compete
Straight-line
 
1-5 years
Amortization expense for intangibles was $83.5 million , $33.8 million and $34.5 million during the years ended December 31, 2016 , 2015 and 2014 , respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2021 is $90.7 million , $75.5 million , $62.2 million , $49.0 million and $41.5 million , respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. Other than the impairment recorded upon recognition of the PGW glass manufacturing business net assets as held for sale as discussed in Note 3, "Discontinued Operations ," there were no material adjustments to the carrying value of long-lived assets during the years ended December 31, 2016 , 2015 or 2014 .
Warranty Reserve
Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity. Our warranty reserve is recorded within Other accrued expenses and Other Noncurrent Liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments. The changes in the warranty reserve are as follows (in thousands):
Balance as of January 1, 2015
$
14,881

Warranty expense
33,727

Warranty claims
(31,245
)
Balance as of December 31, 2015
$
17,363

Warranty expense
32,096

Warranty claims
(29,825
)
Balance as of December 31, 2016
$
19,634


73


Self-Insurance Reserves
We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of ultimate cost, which is calculated using analysis of historical data. We monitor new claims and claim development as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total self-insurance reserves were $84.5 million and $78.4 million , of which $39.5 million and $37.8 million was classified as current as of December 31, 2016 and 2015 , respectively. The remaining balances of self-insurance reserves are classified as Other Noncurrent Liabilities, which reflects management's estimates of when claims will be paid. We had outstanding letters of credit of $70.5 million and $64.9 million at December 31, 2016 and 2015 , respectively, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes have been provided to show the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include interest and penalties associated with income tax obligations in income tax expense.
U.S. federal income taxes are not provided on our interest in undistributed earnings of foreign subsidiaries when it is management's intent that such earnings will remain invested in those subsidiaries or other foreign subsidiaries. Taxes will be provided on these earnings in the period in which a decision is made to repatriate the earnings.
Investments in Unconsolidated Subsidiaries
Our investment in unconsolidated subsidiaries was $183.5 million as of December 31, 2016. On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen AB ("Mekonomen") from AxMeko AB, an affiliate of Axel Johnson AB, for an aggregate purchase price of $181.3 million . Headquartered in Stockholm, Sweden, Mekonomen is the leading independent car parts and service chain in the Nordic region of Europe, offering a wide range of products including spare parts and accessories for cars, and workshop services for consumers and businesses. We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee. We are reporting our equity in the net earnings of Mekonomen on a one quarter lag, and therefore we recorded no equity in earnings for this investment in 2016.
In February 2016, we sold our investment in ACM Parts Pty Ltd. Our remaining investments in unconsolidated subsidiaries and equity in earnings of the investees as of and for the year ended December 31, 2016 were immaterial.
Rental Expense
We recognize rental expense on a straight-line basis over the respective lease terms, including reasonably assured renewal periods, for all of our operating leases.
Foreign Currency Translation
For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using monthly

74


average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated Other Comprehensive Income (Loss) in stockholders' equity.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). This update outlines a new comprehensive revenue recognition model that supersedes most current revenue recognition guidance and requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several updates to ASU 2014-09. ASU 2014-09 will be effective for the Company during the first quarter of our fiscal year 2018. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. We will continue to evaluate the potential effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures; however, we do not plan to early adopt. Entities adopting the standard have the option of using either a full retrospective or modified retrospective approach in the application of this guidance. We are still determining which method of transition we will follow. We are currently in the process of completing customer contract reviews, determining necessary adjustments to existing accounting policies, evaluating new disclosure requirements and identifying and implementing changes to business processes as deemed necessary to support recognition and disclosure under the new guidance. Based on our preliminary assessment, we do not expect a significant impact for the majority of our revenue transactions as they generally consist of single performance obligations to transfer promised goods or services; however, we do expect the new guidance will change the way we present sales returns in our consolidated financial statements. We are still in the process of determining the magnitude of impact for this change.
In September 2015, the FASB issued Accounting Standards Update 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"), which requires an acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are identified as opposed to recognition as if the accounting adjustment had been completed as of the acquisition date. The ASU also requires disclosure regarding amounts that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. ASU 2015-16 became effective for the Company during the first quarter of our fiscal year 2016 and is being applied on a prospective basis. The measurement-period adjustments for our acquisitions and the related impact on earnings of any amounts that would have been recorded in previous periods are disclosed in  Note 2, "Business Combinations ."     
In February 2016, the FASB issued Accounting Standards Update 2016-02, "Leases" ("ASU 2016-02"), to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between current GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard requires that entities apply the effects of these changes using a modified retrospective approach, which includes a number of optional practical expedients. While we are still in the process of quantifying the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures, we anticipate the adoption will materially affect our consolidated balance sheet and disclosures, as the majority of our operating leases will be recorded on the balance sheet under ASU 2016-02. While we do not anticipate the adoption of this accounting standard to have a material impact to our consolidated statements of income at this time, this conclusion may change as we finalize our assessment. In order to assist in our timely implementation of the new standard, we have purchased new software to track our leases. We have engaged a third party to assist with the implementation of the new software with an expectation to complete the implementation by the end of 2017.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" (“ASU 2016-09”), to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, the treatment of forfeitures, and calculation of earnings per share. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. During the third quarter of 2016, the Company elected to early adopt ASU 2016-09 effective January 1, 2016. With the adoption of ASU 2016-09, excess tax benefits are recognized as a component of the income tax provision, whereas these amounts were previously recognized in equity. See Note 13, "Income Taxes " for the impact on our tax provision for the year ended December 31, 2016 as a result of adopting this accounting standard. Within the Consolidated Statements of Cash Flows, excess tax benefits are now presented as an operating activity, rather than a financing activity. The presentation of excess tax benefits on share-based payments was adjusted retrospectively within the Consolidated Statements of Cash Flows, resulting in a $14.4 million and a $17.8 million increase in operating cash flows for the years ended December 31, 2015 and 2014, respectively, with a corresponding decrease to financing cash flows.
In March 2016, the FASB issued Accounting Standards Update No. 2016-05, "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships" ("ASU 2016-05"), which clarifies that a change in a hedging derivative's

75


counterparty would not in and of itself be considered a termination of a derivative instrument or a change in the critical terms of a hedging relationship. The ASU also clarifies that an entity should continue to assess the creditworthiness of the derivative counterparty, as a difference in creditworthiness could cause the hedging relationship to be less than highly effective which would trigger dedesignation of the hedging relationship. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 31, 2016; early adoption and prospective application is permitted. We will consider this guidance going-forward if a novation occurs related to any of our derivative contracts described in Note 10, "Derivative Instruments and Hedging Activities."
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), to add and clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The ASU includes guidance on classification for the following items: debt prepayment or debt extinguishment costs, settlement of zero coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned or bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and other separately identifiable cash flows where application of the predominance principle is prescribed. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017; early adoption is permitted. The guidance requires retrospective application to all periods presented unless it is impracticable to do so. We are still evaluating the impact that ASU
2016-15 will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, "Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying value of a reporting unit exceeds the fair value, an impairment loss will be recognized for the amount of that excess, limited to the goodwill allocated to that reporting unit. This ASU is effective for fiscal years and any interim impairment tests for periods beginning after December 15, 2019; early adoption is permitted for entities with annual and interim impairment tests occurring after January 1, 2017. The guidance requires adoption on a prospective basis. At this time, we do not expect adoption of this standard to have a significant impact on our financial position, results of operations, or cash flows.
    
Note 5. Restructuring and Acquisition Related Expenses
Acquisition Related Expenses
Acquisition related expenses, which include external costs such as legal, accounting and advisory fees, totaled $22.0 million , $6.4 million , and $3.7 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. Of our 2016 expenses, $10.9 million related to our acquisition of Rhiag, $4.1 million related to our acquisition of PGW, and $7.0 million related to other completed and potential acquisitions.
Acquisition related expenses for 2015 included $ 2.5 million related to our Rhiag acquisition, $ 1.6 million related to our acquisitions of eleven aftermarket parts distribution businesses in the Netherlands, $ 0.8 million related to our acquisition of Coast, and $ 1.5 million related to other completed acquisitions and acquisitions that were pending as of December 31, 2015.
Our 2014 expenses included $ 1.9 million related to our acquisitions of seven aftermarket parts distribution businesses in the Netherlands; the remainder of our 2014 expenses related to our acquisition of a supplier of replacement parts, supplies and accessories for recreational vehicles in our Specialty segment as well as other completed acquisitions and acquisitions that were pending as of December 31, 2014.
Acquisition Integration Plans
During the year ended December 31, 2016, we incurred $15.8 million of restructuring expenses. Of this amount, $10.4 million was related to ongoing integration activities in our Specialty segment, which was formed in 2014 and subsequently expanded through acquisitions, including our 2015 Coast acquisition. Expenses incurred were primarily related to facility closure and relocation costs for duplicate facilities, the merger of existing facilities into larger distribution centers, and the termination of employees. We also incurred $3.1 million and $2.3 million of restructuring expenses, including primarily facility rationalization activities, related to our North America and Europe acquisitions, respectively.
During the year ended December 31, 2015 , we incurred  $13.1 million of restructuring expenses. Expenses incurred were primarily a result of the integration of our Coast acquisition and our October 2014 acquisition of a supplier of parts for recreational vehicles into our Specialty business and the integration of our acquisition of Parts Channel into our existing North American wholesale business. These integration activities included the closure of duplicate facilities, termination of employees in connection with the consolidation of overlapping facilities with our existing business, and moving expenses.

76


During the year ended December 31, 2014 , we incurred $5.8 million of restructuring expenses as a result of the integration of our acquisition of Keystone Specialty. Also during 2014, we incurred $1.9 million , $1.0 million , and $0.8 million of other restructuring costs related to our Europe, North America, and Specialty acquisitions, respectively. These costs are a result of activities to integrate our acquisitions into our existing business, including the closure of duplicate facilities, termination of employees in connection with the consolidation of overlapping facilities with our existing business, moving expenses, and other third party services directly related to our acquisitions.
We expect to incur additional expenses related to the integration of certain of our acquisitions into our existing operations in 2017. These integration activities are expected to include the closure of duplicate facilities, rationalization of personnel in connection with the consolidation of overlapping facilities with our existing business, and moving expenses. Future expenses to complete these integration plans are expected to be less than $5.0 million ; this amount excludes any potential future restructuring expense related to the integration of our acquisitions of Rhiag and PGW with our existing business.
European Restructuring Plan
In the third quarter of 2014, we initiated restructuring activities to eliminate overlapping positions within certain of our European operations. As a result of these restructuring activities, we incurred  $1.6 million  of expenses during the year ended December 31, 2014, primarily for severance costs to terminated employees.

Note 6. Stock-Based Compensation
In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we may grant qualified and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and performance units under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 69.9 million shares, subject to antidilution and other adjustment provisions. We have granted RSUs, stock options, and restricted stock under the Equity Incentive Plan. Of the shares approved by our stockholders for issuance under the Equity Incentive Plan, 11.7 million shares remained available for issuance as of December 31, 2016 . We expect to issue new shares of common stock to cover past and future equity grants.
RSUs
RSUs vest over periods of up to five years, subject to a continued service condition. Currently outstanding RSUs contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case, both conditions must be met before any RSUs vest. For the RSUs containing a performance-based vesting condition, the Company must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within  five  years following the grant date. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date.
The Compensation Committee approved the grant of 261,851 ; 215,076 ; and 175,800 RSUs to our executive officers that include both a performance-based vesting condition and a time-based vesting condition in 2016, 2015, and 2014, respectively. The performance-based vesting conditions for the 2016, 2015, and 2014 grants to our executive officers have been satisfied.
The fair value of RSUs that vested during the years ended December 31, 2016 , 2015 and 2014 was $29.2 million , $28.2 million and $27.7 million , respectively.
In January 2017, our Board of Directors granted 678,450 RSUs to employees (including executive officers).

77


The following table summarizes activity related to our RSUs under the Equity Incentive Plan:
 
Number
Outstanding
 
Weighted
Average
Grant Date
Fair Value
 
Weighted Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value
   (in thousands) (1)
Unvested as of January 1, 2016
1,981,292

 
$
24.19

 
 
 
 
Granted
976,318

 
$
29.05

 
 
 
 
Vested
(996,607
)
 
$
22.30

 
 
 
 
Forfeited / Canceled
(87,266
)
 
$
27.15

 
 
 
 
Unvested as of December 31, 2016
1,873,737

 
$
27.58

 
 
 
 
Expected to vest after December 31, 2016
1,723,579

 
$
27.45

 
2.4
 
$
52,828

(1) The aggregate intrinsic value of unvested and expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.
Stock Options
Stock options vest over periods of up to five years, subject to a continued service condition. Stock options expire either six or ten  years from the date they are granted. No stock options were granted during 2016.
The total grant-date fair value of options that vested during the years ended December 31, 2015 and 2014 was $1.2 million and $3.3 million , respectively; no options vested during the year ended December 31, 2016 .
The following table summarizes activity related to our stock options under the Equity Incentive Plan:
 
Number
Outstanding
 
Weighted
Average Exercise Price
 
Weighted Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value
   (in thousands) (1)
Balance as of January 1, 2016
3,765,952

 
$
8.63

 
 
 
 
Exercised
(1,124,317
)
 
$
7.08

 
 
 
$
27,844

Forfeited / Canceled
(18,418
)
 
$
24.14

 
 
 
 
Balance as of December 31, 2016
2,623,217

 
$
9.19

 
2.3
 
$
56,427

Exercisable as of December 31, 2016
2,543,299

 
$
8.46

 
2.3
 
$
56,427

Exercisable as of December 31, 2016 and expected to vest thereafter
2,623,217

 
$
9.19

 
2.3
 
$
56,427

(1) The aggregate intrinsic value of outstanding, exercisable and expected to vest options represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of the last day of the period indicated. This amount changes based on the market price of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2015 and 2014 was $32.4 million and $38.4 million , respectively.
Stock-Based Compensation Expense
For the RSUs that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the requisite service period for each separate vesting tranche of the award. During the years ended December 31, 2016 , 2015, and 2014, we recognized $ 7.3 million , $8.2 million , and $8.2 million , respectively, of stock based compensation expense related to the RSUs containing a performance-based vesting condition. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award.

78


In 2015 and 2014, compensation expense was adjusted to reflect estimated forfeitures. When estimating forfeitures, we considered voluntary and involuntary termination behavior as well as analysis of historical forfeitures. With the adoption of ASU 2016-09 beginning in 2016, we no longer estimate forfeitures; rather, forfeitures are recorded as they occur.
The components of pre-tax stock-based compensation expense for our continuing operations are as follows (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
RSUs
$
22,183

 
$
21,058

 
$
18,965

Stock options and other
162

 
278

 
3,056

Total stock-based compensation expense
$
22,345

 
$
21,336

 
$
22,021

The following table sets forth the classification of total stock-based compensation expense included in our Consolidated Statements of Income for our continuing operations (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Cost of goods sold
$
407

 
$
358

 
$
410

Facility and warehouse expenses
3,980

 
2,271

 
2,195

Selling, general and administrative expenses
17,958

 
18,707

 
19,416

 
22,345

 
21,336

 
22,021

Income tax benefit
(8,268
)
 
(8,221
)
 
(8,478
)
Total stock-based compensation expense, net of tax
$
14,077

 
$
13,115

 
$
13,543

Income from discontinued operations included $0.1 million of pre-tax stock-based compensation expense. We have not capitalized any stock-based compensation costs during the years ended December 31, 2016 , 2015 or 2014 .
As of December 31, 2016 , unrecognized compensation expense related to unvested RSUs is expected to be recognized as follows (in thousands):
 
RSUs
2017
$
15,356

2018
10,379

2019
6,261

2020
3,260

2021
353

Total unrecognized compensation expense
$
35,609

Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized.

Note 7. Earnings Per Share
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and the assumed vesting of RSUs and restricted stock. Certain of our RSUs and stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future.

79


The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Income from continuing operations
$
456,123

 
$
423,223

 
$
381,519

Denominator for basic earnings per share—Weighted-average shares outstanding
306,897

 
304,722

 
302,343

Effect of dilutive securities:
 
 
 
 
 
RSUs
689

 
667

 
791

Stock options
2,198

 
2,107

 
2,905

Restricted stock
—

 
—

 
6

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding
309,784

 
307,496

 
306,045

Basic earnings per share from continuing operations
$
1.49

 
$
1.39

 
$
1.26

Diluted earnings per share from continuing operations
$
1.47

 
$
1.38

 
$
1.25

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Antidilutive securities:
 
 
 
 
 
RSUs
57

 
230

 
289

Stock options
63

 
96

 
116


Note 8. Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):
 
 
Foreign
Currency
Translation
 
Unrealized (Loss)Gain
on Cash Flow Hedges
 
Unrealized Gain
(Loss) on Pension Plans
 
Accumulated
Other
Comprehensive Income (Loss)
Balance at January 1, 2014
 
$
24,906

 
$
(5,596
)
 
$
701

 
$
20,011

Pretax loss
 
(51,979
)
 
(1,586
)
 
(13,506
)
 
(67,071
)
Income tax effect
 
—

 
382

 
3,179

 
3,561

Reclassification of unrealized loss (gain)
 
—

 
5,200

 
(166
)
 
5,034

Reclassification of deferred income taxes
 
—

 
(1,801
)
 
41

 
(1,760
)
Balance at December 31, 2014
 
$
(27,073
)
 
$
(3,401
)
 
$
(9,751
)
 
$
(40,225
)
Pretax (loss) income
 
(69,817
)
 
(1,664
)
 
2,245

 
(69,236
)
Income tax effect
 
—

 
538

 
(561
)
 
(23
)
Reclassification of unrealized loss
 
—

 
5,366

 
559

 
5,925

Reclassification of deferred income taxes
 
—

 
(1,771
)
 
(140
)
 
(1,911
)
Balance at December 31, 2015
 
$
(96,890
)
 
$
(932
)
 
$
(7,648
)
 
$
(105,470
)
Pretax (loss) income
 
(175,639
)
 
12,382

 
7,175

 
(156,082
)
Income tax effect
 
—

 
(4,581
)
 
(2,636
)
 
(7,217
)
Reclassification of unrealized loss (gain)
 
—

 
1,789

 
496

 
2,285

Reclassification of deferred income taxes
 
—

 
(567
)
 
(124
)
 
(691
)
Balance at December 31, 2016
 
$
(272,529
)
 
$
8,091

 
$
(2,737
)
 
$
(267,175
)
Net unrealized losses on our interest rate swaps totaling $3.5 million , $5.4 million , and $6.2 million were reclassified to interest expense in our Consolidated Statements of Income during each of the years ended December 31, 2016 , 2015, and 2014. We also reclassified a gain of $1.7 million related to our cross currency swaps and a gain of $1.0 million related to other foreign currency forward contracts to Interest and other income, net in our Consolidated Statements of Income for the years

80


ended December 31, 2016 and 2014, respectively. The deferred income taxes related to our cash flow hedges were reclassified from Accumulated other comprehensive income (loss) to income tax expense.

Note 9. Long-Term Obligations
Long-Term Obligations consist of the following (in thousands):
 
December 31,
 
2016
 
2015
Senior secured credit agreement:
 
 
 
Term loans payable
$
732,684

 
$
410,625

Revolving credit facilities
1,358,220

 
480,481

Senior notes
600,000

 
600,000

Euro notes
525,850

 
—

Receivables securitization facility
100,000

 
63,000

Notes payable through October 2025 at weighted average interest rates of 2.1% and 2.2%, respectively
11,808

 
16,104

Other long-term debt at weighted average interest rates of 2.4% and 2.4%, respectively
37,125

 
29,485

Total debt
3,365,687

 
1,599,695

Less: long-term debt issuance costs
(21,611
)
 
(13,533
)
Less: current debt issuance costs
(2,305
)
 
(1,460
)
Total debt, net of debt issuance costs
3,341,771

 
1,584,702

Less: current maturities, net of debt issuance costs
(66,109
)
 
(56,034
)
Long term debt, net of debt issuance costs
$
3,275,662

 
$
1,528,668


The scheduled maturities of long-term obligations outstanding at December 31, 2016 are as follows (in thousands):
2017
$
68,414

2018
42,553

2019
140,594

2020
39,002

2021
1,942,680

Thereafter
1,132,444

Total debt (1)
$
3,365,687

(1)  The total debt amounts presented above exclude debt issuance costs totaling $23.9 million as of December 31, 2016.
Senior Secured Credit Agreement
On January 29, 2016, LKQ Corporation, LKQ Delaware LLP, and certain other subsidiaries (collectively, the "Borrowers") entered into the Fourth Amended and Restated Credit Agreement ("Credit Agreement"), which amended the Company’s Third Amended and Restated Credit Agreement by modifying certain terms to (1) extend the maturity date by approximately two years to January 29, 2021; (2) increase the total availability under the credit agreement from $2.3 billion to $3.2 billion (composed of $2.45 billion in the revolving credit facility's multicurrency component; and $750 million of term loans, which consist of a term loan of approximately $500 million and a €230 million term loan); (3) increase our ability to incur additional indebtedness; and (4) make other immaterial or clarifying modifications and amendments to the terms of the Third Amended and Restated Credit Agreement. The additional term loan borrowing was used to repay outstanding revolver borrowings and the amount outstanding under our receivables securitization facility, and to pay fees and expenses relating to the amendment and restatement. The remaining additional term loan borrowing will be used for general corporate purposes.
On December 14, 2016, LKQ Corporation entered into Amendment No. 1 to the Fourth Amended and Restated Credit Agreement under which the €230 million term loan was prepaid in full using proceeds from borrowings on the multicurrency revolving credit facility. Simultaneously, LKQ Corporation borrowed incremental U.S. dollar ("USD") term loans under the Credit Agreement, which were used to repay outstanding borrowings on the USD revolving credit facility. LKQ Corporation

81


borrowed additional USD amounts on the revolving credit facility and entered into a cross currency swap transaction to exchange the borrowed USD for euro and sent these amounts to LKQ Netherlands B.V. as an intercompany loan, which LKQ Netherlands B.V. used to repay the multicurrency revolving credit facility borrowings. These transactions had the effect of replacing the euro term loan with a USD term loan. Refer to Note 10, "Derivative Instruments and Hedging Activities " for additional information related to our cross currency swaps.
Amounts under the revolving credit facility are due and payable upon maturity of the Fourth Amended and Restated Credit Agreement on January 29, 2021. Amounts under the initial and additional term loan borrowings will be due and payable in quarterly installments equal to 0.625% of the original principal amount on each of June 30, September 30, and December 31, 2016, and quarterly installments thereafter equal to 1.25% of the original principal amount beginning on March 31, 2017, with the remaining balance due and payable on the maturity date of the Fourth Amended and Restated Credit Agreement.
We are required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay outstanding amounts under the Credit Agreement without penalty.
The Credit Agreement contains customary representations and warranties, and contains customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.
Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending on our net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing. Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities ," the weighted average interest rates on borrowings outstanding under the Credit Agreement at December 31, 2016 and 2015 were 2.0% and 1.8% , respectively. We also pay a commitment fee based on the average daily unused amount of the revolving credit facilities. The commitment fee is subject to change in increments of 0.05% depending on our net leverage ratio. In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, as well as a fronting fee of 0.125% to the issuing bank, which are due quarterly in arrears.
Of the total borrowings outstanding under the Credit Agreement, $37.2 million and $22.5 million were classified as current maturities at December 31, 2016 and 2015, respectively. As of December 31, 2016, there were letters of credit outstanding in the aggregate amount of $72.7 million . The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at December 31, 2016 was $1.0 billion .
Related to the execution of the Credit Agreement in January 2016, we incurred $6.1 million of fees, of which $5.0 million were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement. The remaining $1.1 million of fees, together with $1.8 million of capitalized debt issuance costs related to our Third Amended and Restated Credit Agreement, were expensed during the year ended December 31, 2016 as a loss on debt extinguishment.
Related to the execution of the Third Amended and Restated Credit Agreement in March 2014, we incurred $3.7 million of fees, of which $3.4 million was capitalized as an offset to Long-Term Obligations and amortized over the term of the agreement. The remaining $0.3 million of fees were expensed during the year ended December 2014 as a loss on debt extinguishment.
Senior Notes
In April 2014, LKQ Corporation completed an offer to exchange $600 million aggregate principal amount of 4.75% Senior Notes due 2023 (the " U.S. Notes") for notes previously issued through a private placement. The U.S. Notes are governed by the Indenture dated as of May 9, 2013 among LKQ Corporation, certain of our subsidiaries (the "Guarantors") and U.S. Bank National Association, as trustee. The U.S. Notes are substantially identical to those previously issued through the private placement, except the U.S. Notes are registered under the Securities Act of 1933.
The U.S. Notes bear interest at a rate of 4.75% per year from the most recent payment date on which interest has been paid or provided for. Interest on the U.S. Notes is payable in arrears on May 15 and November 15 of each year. The first interest payment was made on November 15, 2013. The U.S. Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.
The U.S. Notes and the guarantees are, respectively, LKQ Corporation and each Guarantor's senior unsecured obligations and are subordinated to all of the Guarantors' existing and future secured debt to the extent of the assets securing

82


that secured debt. In addition, the Notes are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the U.S. Notes to the extent of the assets of those subsidiaries.
Repayment of Rhiag Acquired Debt and Debt Related Liabilities
On March 24, 2016, LKQ Netherlands B.V., a wholly-owned subsidiary of ours, borrowed €508 million under our multi-currency revolving credit facility to repay the Rhiag acquired debt and debt related liabilities. The borrowed funds were passed through an intercompany note to Rhiag and then were used to pay (i) $519.6 million ( €465.0 million ) for the principal of Rhiag senior note debt assumed with the acquisition, (ii) accrued interest of $8.0 million ( €7.1 million ) on the notes, (iii) the call premium of $23.8 million ( €21.2 million ) associated with early redemption of the notes and (iv) $4.9 million ( €4.4 million ) to terminate Rhiag’s outstanding interest rate swap related to the floating portion of the notes. The call premium is recorded as a loss on debt extinguishment in the Consolidated Statements of Income.
Euro Notes
On April 14, 2016, LKQ Italia Bondco S.p.A. (the “Issuer”), an indirect, wholly-owned subsidiary of LKQ Corporation, completed an offering of €500 million aggregate principal amount of senior notes due April 1, 2024 (the “Euro Notes”) in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering were used to repay a portion of the revolver borrowings under the Credit Agreement and to pay related fees and expenses. The Euro Notes are governed by the Indenture dated as of April 14, 2016 (the “Indenture”) among the Issuer, LKQ Corporation and certain of our subsidiaries (the “Euro Notes Subsidiaries”), the trustee, and the paying agent, transfer agent, and registrar.
The Euro Notes bear interest at a rate of 3.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes is payable in arrears on April 1 and October 1 of each year, beginning on October 1, 2016. The Euro Notes are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes Subsidiaries (the "Euro Notes Guarantors").
The Euro Notes and the guarantees are, respectively, the Issuer’s and each Euro Notes Guarantor’s senior unsecured obligations and are subordinated to all of the Issuer's and the Euro Notes Guarantors’ existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes to the extent of the assets of those subsidiaries. The Euro Notes have been listed on the ExtraMOT, Professional Segment of the Borsa Italia S.p.A. securities exchange as well as the Global Exchange Market of the Irish Stock Exchange.
Related to the execution of the Euro Notes in April 2016, we incurred $10.3 million of fees which were capitalized as an offset to Long-Term Obligations and are being amortized over the term of the offering.
Restricted Payments
Our senior secured credit agreement and our senior notes indentures contain limitations on payment of cash dividends or other distributions of assets. Based on limitations in effect under our senior secured credit agreement and senior notes indentures, the maximum amount of dividends we could pay as of December 31, 2016 was approximately $1.0 billion . The limit on the payment of dividends is calculated using historical financial information and will change from period to period.
Receivables Securitization Facility
On November 29, 2016, we amended the terms of the receivables securitization facility with The Bank of Tokyo-Mitsubishi UFJ, LTD. ("BTMU") to: (i) extend the term of the facility to November 8, 2019; (ii) increase the maximum amount available to $100 million ; and (iii) make other clarifying and updating changes. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to BTMU for the benefit of conduit investors and/or financial institutions for cash proceeds. Upon payment of the receivables by customers, rather than remitting to BTMU the amounts collected, LKQ retains such collections as proceeds for the sale of new receivables generated by certain of the ongoing operations of the Company.
The sale of the ownership interest in the receivables is accounted for as a secured borrowing in our Consolidated Balance Sheets, under which the receivables included in the program collateralize the amounts invested by BTMU, the conduit investors and/or financial institutions (the "Purchasers"). The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a wholly owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy the creditors of LRFC, including the investors. As of December 31, 2016 and 2015 , $140.3 million and $136.1 million , respectively, of net receivables were collateral for the investment under the receivables facility.

83


Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers. The variable rates are based on (i) commercial paper rates, (ii) the London InterBank Offered Rate ("LIBOR"), or (iii) base rates, and are payable monthly in arrears. Commercial paper rates will be the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions will invest at the LIBOR rate or at base rates. We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears. As of December 31, 2016 , the interest rate under the receivables facility was based on commercial paper rates and was 1.8% . The outstanding balance of $100.0 million as of December 31, 2016 was classified as long-term on the Consolidated Balance Sheets because we have the ability and intent to refinance these borrowings on a long-term basis.

Note 10. Derivative Instruments and Hedging Activities
We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under our current policies, we use derivatives to manage our exposure to variable interest rates on our senior secured debt and changing foreign exchange rates for certain foreign currency denominated transactions. We do not hold or issue derivatives for trading purposes.
Cash Flow Hedges
We hold interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount. The effective portion of changes in the fair value of the interest rate swap agreements is recorded in Accumulated Other Comprehensive Income (Loss) and is reclassified to interest expense when the underlying interest payment has an impact on earnings. The ineffective portion of changes in the fair value of the interest rate swap agreements is reported in interest expense.
As of December 31, 2016, we held interest rate swap contracts representing $590 million of U.S. dollar-denominated debt. These interest rate swaps were executed during 2016 and have maturity dates ranging from January to June 2021. During 2016, existing swaps relating to a total of $170 million of U.S dollar-denominated debt, £ 50 million of GBP-denominated debt, and C$25 million of CAD-denominated debt expired.
From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows, as well as minimizing the impact of fluctuating exchange rates on our results of operations through the respective dates of settlement. Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S. dollars at a fixed rate on the maturity dates of the contracts. The effective portion of the changes in fair value of the foreign currency forward contracts is recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to other income (expense) when the underlying transaction has an impact on earnings. During 2014, foreign currency forward contracts with notional amounts of £70 million and €150 million were settled through payments to the counterparties totaling $20.0 million . At that time, we also settled the underlying intercompany debt transactions.
In 2016, we entered into three cross currency swap agreements for a total notional amount of $422.4 million ( €400 million ) with maturity dates in January 2021. These cross currency swaps contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps are intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements. The effective portion of the changes in the fair value of the derivative instruments is recorded in Accumulated Other Comprehensive Income (Loss) and is reclassified to interest expense and other income (expense) when the underlying transactions have an impact on earnings.

84


The following table summarizes the notional amounts and fair values of our designated cash flow hedges as of December 31, 2016 and 2015 (in thousands):
 
 
Notional Amount
 
Fair Value at December 31, 2016 (USD)
 
Fair Value at December 31, 2015 (USD)
 
 
December 31, 2016
 
December 31, 2015
 
Other Assets
Other Noncurrent Liabilities
 
Other Accrued Expenses
Interest rate swap agreements
 
 
 
 
 
USD denominated
 
$
590,000

 
$
170,000

 
$
16,421

$
—

 
$
858

GBP denominated
 
£
—

 
£
50,000

 
—

—

 
465

CAD denominated
 
C$
—

 
C$
25,000

 
—

—

 
24

Cross currency swap agreements
 
 
 
 
 
USD/euro
 
$
422,408

 
$
—

 
1,486

3,128

 
—

Total cash flow hedges
 
$
17,907

$
3,128

 
$
1,347

While our derivative instruments executed with the same counterparty are subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis in our Consolidated Balance Sheets. The impact of netting the fair values of these contracts would not have a material effect on our Consolidated Balance Sheets at December 31, 2016 or 2015 .
The activity related to our cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss) ." Ineffectiveness related to our cash flow hedges was immaterial to our results of operations during 2016 , 2015 and 2014. We do not expect future ineffectiveness related to our cash flow hedges to have a material effect on our results of operations.
As of December 31, 2016 , we estimate that $1.4 million of derivative losses (net of tax) included in Accumulated Other Comprehensive Income (Loss) will be reclassified into our Consolidated Statements of Income within the next 12 months.
Other Derivative Instruments
We hold other short-term derivative instruments, including foreign currency forward contracts to manage our exposure to variability related to inventory purchases and intercompany financing transactions denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions, and therefore the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in volatility in our earnings. The notional amount and fair value of these contracts at December 31, 2016 and 2015 , along with the effect on our results of operations in 2016 , 2015 and 2014, were immaterial.

Note 11. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value
We use the market and income approaches to value our financial assets and liabilities, and during the year ended December 31, 2016 , there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

85


The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of December 31, 2016 and 2015 (in thousands):
 
Balance as of December 31, 2016
 
Fair Value Measurements as of December 31, 2016
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash surrender value of life insurance
$
36,131

 
$
—

 
$
36,131

 
$
—

Interest rate swaps
17,907

 
—

 
17,907

 
—

Total Assets
$
54,038

 
$
—

 
$
54,038

 
$
—

Liabilities:
 
 
 
 
 
 
 
Contingent consideration liabilities
$
3,162

 
$
—

 
$
—

 
$
3,162

Deferred compensation liabilities
36,865

 
—

 
36,865

 
—

Foreign currency forward contracts
3,128

 
—

 
3,128

 
—

Total Liabilities
$
43,155

 
$
—

 
$
39,993

 
$
3,162

 
Balance as of December 31, 2015
 
Fair Value Measurements as of December 31, 2015
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash surrender value of life insurance
$
29,782

 
$
—

 
$
29,782

 
$
—

Total Assets
$
29,782

 
$
—

 
$
29,782

 
$
—

Liabilities:
 
 
 
 
 
 
 
Contingent consideration liabilities
$
4,584

 
$
—

 
$
—

 
$
4,584

Deferred compensation liabilities
30,336

 
—

 
30,336

 
—

Interest rate swaps
1,347

 
—

 
1,347

 
—

Total Liabilities
$
36,267

 
$
—

 
$
31,683

 
$
4,584

The cash surrender value of life insurance is included in Other Assets on our Consolidated Balance Sheets. The current portion of deferred compensation is included in Accrued payroll-related liabilities and the current portion of contingent consideration liabilities is included in Other current liabilities on our Consolidated Balance Sheets; the noncurrent portion of these amounts is included in Other Noncurrent Liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps and foreign currency forward contracts is presented in Note 10, "Derivative Instruments and Hedging Activities ."
Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades. We value our derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.
Our contingent consideration liabilities are related to our business acquisitions as further described in Note 2, "Business Combinations ." Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market.
Financial Assets and Liabilities Not Measured at Fair Value
Our debt is reflected on the Consolidated Balance Sheets at cost. Based on market conditions as of December 31, 2016 and 2015 , the fair value of our credit agreement borrowings reasonably approximated the carrying value of $2.1 billion and $891.1 million , respectively. In addition, based on market conditions, the fair value of the outstanding borrowings under the receivables facility reasonably approximated the carrying value of $100.0 million and $63.0 million at December 31, 2016 and 2015 , respectively. As of December 31, 2016 and 2015 , the fair value of the U.S. Notes was approximately $599 million and $567 million , respectively, compared to a carrying value of $ 600 million . As of December 31, 2016 , the fair value of the Euro Notes was approximately $561 million million compared to a carrying value of $526 million .

86


The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by calculating the upfront cash payment a market participant would require at December 31, 2016 to assume these obligations. The fair value of our Notes is classified as Level 1 within the fair value hierarchy since it is determined based upon observable market inputs including quoted market prices in an active market. The fair value of our Euro Notes is determined based upon observable market inputs including quoted market prices in a market that is not active, and therefore is classified as Level 2 within the fair value hierarchy.

Note 12. Commitments and Contingencies
Operating Leases
We are obligated under noncancelable operating leases for corporate office space, warehouse and distribution facilities, trucks and certain equipment.
The future minimum lease commitments under these leases at December 31, 2016 are as follows (in thousands):
Years ending December 31:
 
2017
$
200,450

2018
168,926

2019
136,462

2020
110,063

2021
82,494

Thereafter
486,199

Future Minimum Lease Payments
$
1,184,594

Rental expense for operating leases was approximately $211.5 million , $168.4 million and $148.5 million during the years ended December 31, 2016 , 2015 and 2014 , respectively.
We guarantee the residual values of the majority of our truck and equipment operating leases. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a piece of equipment is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a piece of equipment is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases subject to these guarantees at December 31, 2016 , our portion of the guaranteed residual value would have totaled approximately $59.0 million . We have not recorded a liability for the guaranteed residual value of equipment under operating leases as the recovery on disposition of the equipment under the leases is expected to approximate the guaranteed residual value.
Litigation and Related Contingencies

We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.


87


Note 13. Income Taxes
The provision for income taxes consists of the following components (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
Federal
$
159,547

 
$
138,432

 
$
144,924

State
27,120

 
25,952

 
24,052

Foreign
45,545

 
32,931

 
29,046

 
$
232,212

 
$
197,315

 
$
198,022

Deferred:
 
 
 
 
 
Federal
$
1,169

 
$
22,233

 
$
9,321

State
2,131

 
1,212

 
(179
)
Foreign
(14,946
)
 
(1,057
)
 
(2,900
)
 
$
(11,646
)
 
$
22,388

 
$
6,242

Provision for income taxes
$
220,566

 
$
219,703

 
$
204,264

Income taxes have been based on the following components of income from continuing operations before provision for income taxes (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Domestic
$
513,844

 
$
478,819

 
$
460,637

Foreign
163,437

 
170,211

 
127,251

 
$
677,281

 
$
649,030

 
$
587,888

The U.S. federal statutory rate is reconciled to the effective tax rate as follows:
 
Year Ended December 31,
 
2016
 
2015
 
2014
U.S. federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of state credits and federal tax impact
2.7
 %
 
2.9
 %
 
2.8
 %
Impact of international operations
(3.2
)%
 
(4.1
)%
 
(3.6
)%
Notional interest deductions
(2.5
)%
 
—
 %
 
—
 %
Excess tax benefits from stock-based compensation  (1)
(1.6
)%
 
—
 %
 
—
 %
Non-deductible expenses
1.3
 %
 
0.8
 %
 
0.5
 %
Other, net
0.9
 %
 
(0.7
)%
 
—
 %
Effective tax rate
32.6
 %
 
33.9
 %
 
34.7
 %

(1) Represents an $11.4 million discrete item in 2016 for excess tax benefits from stock-based payments related to the early adoption of ASU 2016-09. See Note 4, "Summary of Significant Accounting Policies " to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $530 million at December 31, 2016 . Those earnings are considered to be indefinitely reinvested, and accordingly no provision for U.S. income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and potential withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce materially any U.S. liability.


88


The significant components of our deferred tax assets and liabilities are as follows (in thousands):
 
December 31,
 
2016
 
2015
Deferred Tax Assets:
 
 
 
Accrued expenses and reserves
$
62,059

 
$
46,837

Qualified and nonqualified retirement plans
36,626

 
14,130

Inventory
35,565

 
27,184

Accounts receivable
19,046

 
13,971

Interest deduction carryforwards
9,806

 
—

Stock-based compensation
9,687

 
11,096

Net operating loss carryforwards
7,858

 
8,946

Other
7,699

 
8,212

 
188,346

 
130,376

Less: valuation allowance
(11,252
)
 
(3,880
)
Total deferred tax assets
$
177,094

 
$
126,496

Deferred Tax Liabilities:
 
 
 
Goodwill and other intangible assets
$
222,476

 
$
141,442

Property and equipment
72,231

 
67,065

Trade name
59,002

 
36,532

Other
19,439

 
5,342

Total deferred tax liabilities
$
373,148

 
$
250,381

Net deferred tax liability
$
(196,054
)
 
$
(123,885
)
Deferred tax assets and liabilities are reflected on our Consolidated Balance Sheets as follows (in thousands):
 
December 31,
 
2016
 
2015
Noncurrent deferred tax assets
$
3,603

 
$
3,354

Noncurrent deferred tax liabilities
199,657

 
127,239

Our noncurrent deferred tax assets and noncurrent deferred tax liabilities are included in Other Assets and Deferred Income Taxes, respectively, on our Consolidated Balance Sheets.
We had net operating loss carryforwards for federal and certain of our state tax jurisdictions, the tax benefits of which total approximately $7.9 million and $8.9 million at December 31, 2016 and 2015 , respectively. At December 31, 2016 and 2015 , we had foreign, state, and local tax credit carryforwards, the tax benefits of which total approximately $1.8 million and $3.2 million , respectively. At December 31, 2016 we had interest deduction carryforwards in Italy of $9.8 million . As of December 31, 2016 and 2015 , valuation allowances of $11.3 million and $3.9 million , respectively, were recorded for a portion of the deferred tax assets related to net operating loss, tax credit carryforwards and interest deduction carryforwards. The $7.4 million net increase in valuation allowances was primarily due to a $6.8 million valuation allowance provided on certain interest deduction carryforwards suspended due to Italy's thin capitalization constraints, and a $1.0 million increase attributable to acquired foreign net operating loss carryforwards. These increases were partially offset by a $0.4 million decrease attributable to our judgment regarding the realization of other losses and tax credits.
The net operating loss carryforwards expire over the period from 2017 through 2037. Foreign tax credit carryforwards expire over the period from 2017 through 2026, while the state and local tax credits primarily have no expiration. The interest deduction carryforwards do not expire. Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates. Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided. While we expect to realize the deferred tax assets, net of valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.

89


A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
 
2016
 
2015
 
2014
Balance at January 1
$
2,273

 
$
2,630

 
$
1,445

Additions for acquired tax positions
—

 
80

 
2,322

Additions based on tax positions related to the current year
5

 
302

 
302

Reductions for tax positions of prior years
—

 
(743
)
 
—

Lapse of statutes of limitations
(132
)
 
(119
)
 
(134
)
Settlements with taxing authorities
—

 
—

 
(1,182
)
Currency exchange rate fluctuations
—

 
123

 
(123
)
Balance at December 31
$
2,146

 
$
2,273

 
$
2,630


Included in the balance of unrecognized tax benefits above as of December 31, 2016, 2015 and 2014 are $1.4 million , $1.5 million and $1.9 million , respectively, of tax benefits that, if recognized, would affect the effective tax rate. The balance of unrecognized tax benefits at December 31, 2016, 2015 and 2014 also includes $0.8 million , $0.8 million , and $0.7 million respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense. Attributable to the unrecognized tax benefits noted above, the Company had accumulated interest and penalties of $ 0.8 million at both December 31, 2016 and 2015. During each of the years ended December 31, 2016 , 2015 , and 2014 , $0.1 million of interest and penalties were recorded through the income tax provision, prior to any reversals for lapses in the statutes of limitations.
During the twelve months beginning January 1, 2017, it is reasonably possible that we will reduce unrecognized tax benefits by up to approximately $0.5 million , all of which would impact our effective tax rate, primarily as a result of the expiration of certain statutes of limitations.
In the U.S., the Internal Revenue Service has completed an examination of the U.S. Federal consolidated tax returns through 2013. Tax years from 2011 and onward are subject to income tax examinations by various U.S. state and local jurisdictions. In the U.K., with limited exception, tax years through 2010 are no longer subject to inquiry. Certain Canadian operations are under examination for the years 2010 to 2012. In Italy, certain issues from 2007 through 2012 are subject to litigation with the Italian tax authorities. In addition, certain Italian operations are under examination for the 2011 tax year. In the Netherlands, tax years through 2014 have been assessed. Adjustments from such examinations, if any, are not expected to have a material effect on our consolidated financial statements.

Note 14. Segment and Geographic Information
We have five operating segments: Wholesale – North America; Europe; Specialty; Glass and Self Service. Our Wholesale – North America, Glass, and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered. The reportable segments are managed separately as each business serves different customers (i.e. geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions. Therefore, we present three reportable segments: North America, Europe and Specialty.
We are combining the continuing aftermarket products business of the Glass operating segment into our Wholesale – North America operating segment, which we expect to complete in 2017.
    

90


The following tables present our financial performance by reportable segment for the periods indicated (in thousands):
 
North America
 
Europe
 
Specialty
 
Eliminations
 
Consolidated
Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Third Party
$
4,470,900

 
$
2,920,470

 
$
1,192,661

 
$
—

 
$
8,584,031

Intersegment
739

 
—

 
4,048

 
(4,787
)
 
—

Total segment revenue
$
4,471,639

 
$
2,920,470

 
$
1,196,709

 
$
(4,787
)
 
$
8,584,031

Segment EBITDA
$
596,333

 
$
283,608

 
$
125,039

 
$
—

 
$
1,004,980

Depreciation and amortization (1)
81,395

 
94,979

 
21,960

 
—

 
198,334

Year Ended December 31, 2015
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Third Party
$
4,145,998

 
$
1,995,385

 
$
1,051,250

 
$
—

 
$
7,192,633

Intersegment
835

 
70

 
3,334

 
(4,239
)
 
—

Total segment revenue
$
4,146,833

 
$
1,995,455

 
$
1,054,584

 
$
(4,239
)
 
$
7,192,633

Segment EBITDA
$
547,405

 
$
200,563

 
$
106,561

 
$
—

 
$
854,529

Depreciation and amortization (1)
70,369

 
36,446

 
21,377

 
—

 
128,192

Year Ended December 31, 2014
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Third Party
$
4,088,701

 
$
1,846,155

 
$
805,208

 
$
—

 
$
6,740,064

Intersegment
589

 
—

 
1,807

 
(2,396
)
 
—

Total segment revenue
$
4,089,290

 
$
1,846,155

 
$
807,015

 
$
(2,396
)
 
$
6,740,064

Segment EBITDA
$
543,943

 
$
167,155

 
$
79,453

 
$
—

 
$
790,551

Depreciation and amortization (1)
70,434

 
34,391

 
20,612

 
—

 
125,437

(1) Amounts presented include depreciation and amortization expense recorded within cost of goods sold.
The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other acquisition related gains and losses and equity in earnings (loss) of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding discontinued operations, depreciation, amortization, interest (which includes loss on debt extinguishment) and income tax expense.


91


The table below provides a reconciliation of Net Income to Segment EBITDA (in thousands):
 
Year Ended December 31,
2016
 
2015
 
2014
Net income
$
463,975

 
$
423,223

 
$
381,519

Subtract:
 
 
 
 
 
Income from discontinued operations, net of tax
7,852

 
—

 
—

Income from continuing operations
456,123

 
423,223

 
381,519

Add:
 
 
 
 
 
Depreciation and amortization
191,433

 
122,120

 
120,719

Depreciation and amortization - cost of goods sold
6,901

 
6,072

 
4,718

Interest expense, net
87,682

 
57,342

 
63,947

Loss on debt extinguishment
26,650

 
—

 
324

Provision for income taxes
220,566

 
219,703

 
204,264

EBITDA
989,355

 
828,460

 
775,491

Subtract:
 
 
 
 
 
Equity in earnings (loss) of unconsolidated subsidiaries
(592
)
 
(6,104
)
 
(2,105
)
Gains on foreign exchange contracts- acquisition related (1)
18,342

 
—

 
—

Gain on bargain purchase (2)
8,207

 
—

 
—

Add:
 
 
 
 
 
Restructuring and acquisition related expenses (3)
37,762

 
19,511

 
14,806

    Inventory step-up adjustment - acquisition related  (4)
3,614

 
—

 
—

Change in fair value of contingent consideration liabilities
206

 
454

 
(1,851
)
Segment EBITDA
$
1,004,980

 
$
854,529

 
$
790,551


(1)  Reflects gains on foreign currency forwards used to fix the euro purchase price of Rhiag. See Note 2, "Business Combinations ," for further information.
(2) Reflects the gain on bargain purchase related to our acquisition of Andrew Page. See Note 2, "Business Combinations ," for further information.
(3) See  Note 5, "Restructuring and Acquisition Related Expenses ," for further information.
(4) Reflects the impact on Cost of Goods Sold of the step-up acquisition adjustment to record PGW aftermarket glass inventory at its fair value.
      
The following table presents capital expenditures by reportable segment (in thousands):
 
Year Ended December 31,
2016
 
2015
 
2014
Capital Expenditures
 
 
 
 
 
North America
$
91,618

 
$
72,048

 
$
86,172

Europe
77,689

 
79,072

 
44,896

Specialty
13,611

 
19,370

 
9,882

Discontinued operations
24,156

 
—

 
—

Total capital expenditures
$
207,074

 
$
170,490

 
$
140,950


92


The following table presents assets by reportable segment (in thousands):
 
December 31,
2016
 
2015
 
2014
Receivables, net
 
 
 
 
 
North America (1)
$
352,930

 
$
314,743

 
$
322,713

Europe (1)
443,281

 
215,710

 
227,987

Specialty
64,338

 
59,707

 
50,722

Total receivables, net
860,549

 
590,160

 
601,422

Inventories
 
 
 
 
 
North America (1)
917,311

 
847,787

 
826,429

Europe (1)
718,729

 
427,323

 
402,488

Specialty
299,197

 
281,442

 
204,930

Total inventories
1,935,237

 
1,556,552

 
1,433,847

Property and Equipment, net
 
 
 
 
 
North America (1)
506,274

 
467,961

 
456,288

Europe (1)
247,910

 
175,455

 
128,309

Specialty
57,392

 
53,151

 
45,390

Total property and equipment, net
811,576

 
696,567

 
629,987

Equity Method Investments
 
 
 
 
 
North America
336

 
628

 
536

Europe (2)
183,131

 
2,127

 
7,592

Total equity method investments
183,467

 
2,755

 
8,128

Other unallocated assets
4,512,370

 
2,801,803

 
2,802,355

Total assets
$
8,303,199

 
$
5,647,837

 
$
5,475,739

(1)  The increase in assets for our North America and Europe segments primarily relates to the PGW aftermarket and Rhiag acquisitions, respectively. See Note 2, "Business Combinations " for further details.
(2) The increase in Europe relates primarily to our investment in Mekonomen as described in Note 4, "Summary of Significant Accounting Policies."
We report net receivables, inventories, and net property and equipment by segment as that information is used by the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash, prepaid expenses and other current and noncurrent assets, goodwill, intangibles, assets from discontinued operations and income taxes.
The majority of our operations are conducted in the U.S. Our European operations are located in the U.K., the Netherlands, Belgium, France, Sweden, and Norway. As part of the Rhiag acquisition, we expanded our operations into Italy, Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, and Spain. Our operations in other countries include recycled and aftermarket operations in Canada, engine remanufacturing and bumper refurbishing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation.
The following table sets forth our revenue by geographic area (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue
 
 
 
 
 
United States
$
5,226,918

 
$
4,831,875

 
$
4,499,743

United Kingdom
1,390,775

 
1,382,432

 
1,321,786

Other countries
1,966,338

 
978,326

 
918,535

Total revenue
$
8,584,031

 
$
7,192,633

 
$
6,740,064


93



The following table sets forth our tangible long-lived assets by geographic area (in thousands):
 
December 31,
 
2016
 
2015
 
2014
Long-lived Assets
 
 
 
 
 
United States
$
531,425

 
$
493,300

 
$
469,450

United Kingdom
159,689

 
138,546

 
92,813

Other countries
120,462

 
64,721

 
67,724

Total long-lived assets
$
811,576

 
$
696,567

 
$
629,987


The following table sets forth our revenue by product category (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Aftermarket, other new and refurbished products
$
6,441,160

 
$
5,116,373

 
$
4,613,454

Recycled, remanufactured and related products and services
1,703,485

 
1,597,578

 
1,473,305

Other
439,386

 
478,682

 
653,305

Total revenue
$
8,584,031

 
$
7,192,633

 
$
6,740,064

    
Our North American reportable segment generates revenue from all of our product categories, while our European and Specialty segments generate revenue primarily from the sale of aftermarket products. Revenue from other sources includes scrap sales, bulk sales to mechanical remanufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations.

Note 15.
Selected Quarterly Data (unaudited)
The following table presents unaudited selected quarterly financial data for the two years ended December 31, 2016 . The operating results for any quarter are not necessarily indicative of the results for any future period.
 
Quarter Ended
(In thousands, except per share data)
Dec. 31
 
Sep. 30
 
Jun. 30
 
Mar. 31
2016
 
 
 
 
 
 
 
Revenue
$
2,150,406

 
$
2,207,343

 
$
2,304,806

 
$
1,921,476

Gross margin
830,006

 
855,444

 
905,816

 
760,437

Operating income
161,880

 
183,401

 
232,445

 
185,672

Income from continuing operations
96,298

 
109,844

 
137,810

 
112,171

(Loss) income from discontinued operations
(9,967
)
 
12,844

 
4,975

 
—

Net income (1)
86,331

 
122,688

 
142,785

 
112,171

Basic earnings per share from continuing operations (1),(2)
$
0.31

 
$
0.36

 
$
0.45

 
$
0.37

Diluted earnings per share from continuing operations (1),(2)
$
0.31

 
$
0.35

 
$
0.45

 
$
0.36

 
Quarter Ended
(In thousands, except per share data)
Dec. 31
 
Sep. 30
 
Jun. 30
 
Mar. 31
2015
 
 
 
 
 
 
 
Revenue
$
1,748,919

 
$
1,831,732

 
$
1,838,070

 
$
1,773,912

Gross margin
697,327

 
712,779

 
723,944

 
699,479

Operating income
151,671

 
166,745

 
200,285

 
185,926

Net income
95,060

 
101,346

 
119,722

 
107,095

Basic earnings per share from continuing operations (2)
$
0.31

 
$
0.33

 
$
0.39

 
$
0.35

Diluted earnings per share from continuing operations (2)
$
0.31

 
$
0.33

 
$
0.39

 
$
0.35


94


(1)
During the third quarter of 2016, the Company elected to early adopt ASU 2016-09 effective January 1, 2016. The quarterly amounts above reflect the impact of adoption. See Note 4, "Summary of Significant Accounting Policies " for further information.
(2)
The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in weighted average shares outstanding throughout the year.
The 2016 amounts presented above include the results of operations of Rhiag, from its acquisition effective March 18, 2016, and PGW, from its acquisition effective April 21, 2016.


95


Note 16.
Condensed Consolidating Financial Information

LKQ Corporation (the "Parent") issued, and certain of its 100% owned subsidiaries (the "Guarantors") have fully and unconditionally guaranteed, jointly and severally, the U.S. Notes due on May 15, 2023. A Guarantor's guarantee will be unconditionally and automatically released and discharged upon the occurrence of any of the following events: (i) a transfer (including as a result of consolidation or merger) by the Guarantor to any person that is not a Guarantor of all or substantially all assets and properties of such Guarantor, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes; (ii) a transfer (including as a result of consolidation or merger) to any person that is not a Guarantor of the equity interests of a Guarantor or issuance by a Guarantor of its equity interests such that the Guarantor ceases to be a subsidiary, as defined in the Indenture, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes; (iii) the release of the Guarantor from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes; and (iv) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, as defined in the Indenture.

Presented below are the condensed consolidating financial statements of the Parent, the Guarantors, the non-guarantor subsidiaries (the "Non-Guarantors"), and the elimination entries necessary to present our financial statements on a consolidated basis as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934 resulting from the guarantees of the U.S. Notes. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. The condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the consolidated financial statements, and may not necessarily be indicative of the financial position, results of operations or cash flows had the the Parent, the Guarantors and the Non-Guarantors operated as independent entities.


96


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Income
(In thousands)
 
Year Ended December 31, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenue
$
—

 
$
5,467,430

 
$
3,301,503

 
$
(184,902
)
 
$
8,584,031

Cost of goods sold
—

 
3,313,503

 
2,103,727

 
(184,902
)
 
5,232,328

Gross margin
—

 
2,153,927

 
1,197,776

 
—

 
3,351,703

Facility and warehouse expenses
—

 
475,487

 
213,431

 
—

 
688,918

Distribution expenses
—

 
453,192

 
230,620

 
—

 
683,812

Selling, general and administrative expenses
34,163

 
521,909

 
430,308

 
—

 
986,380

Restructuring and acquisition related expenses
—

 
21,162

 
16,600

 
—

 
37,762

Depreciation and amortization
132

 
94,165

 
97,136

 
—

 
191,433

Operating (loss) income
(34,295
)
 
588,012

 
209,681

 
—

 
763,398

Other expense (income):
 
 
 
 
 
 
 
 
 
Interest expense
59,415

 
547

 
28,301

 
—

 
88,263

Intercompany interest (income) expense, net
(27,470
)
 
17,124

 
10,346

 
—

 
—

Loss on debt extinguishment
2,894

 
—

 
23,756

 
—

 
26,650

Gain on foreign exchange contracts - acquisition related
(18,342
)
 
—

 
—

 
—

 
(18,342
)
Gain on bargain purchase
—

 
—

 
(8,207
)
 
—

 
(8,207
)
Interest and other expense (income), net
470

 
(3,773
)
 
1,056

 
—

 
(2,247
)
Total other expense, net
16,967

 
13,898

 
55,252

 
—

 
86,117

(Loss) income from continuing operations before (benefit) provision for income taxes
(51,262
)
 
574,114

 
154,429

 
—

 
677,281

(Benefit) provision for income taxes
(20,498
)
 
213,794

 
27,270

 
—

 
220,566

Equity in earnings (loss) of unconsolidated subsidiaries
(795
)
 
—

 
203

 
—

 
(592
)
Equity in earnings of subsidiaries
487,682

 
22,314

 
—

 
(509,996
)
 
—

Income from continuing operations
456,123

 
382,634

 
127,362

 
(509,996
)
 
456,123

Income from discontinued operations, net of tax
7,852

 
7,852

 
3,285

 
(11,137
)
 
7,852

Net income
$
463,975

 
$
390,486

 
$
130,647

 
$
(521,133
)
 
$
463,975


97


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Income
(In thousands)
 
Year Ended December 31, 2015
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenue
$
—

 
$
4,965,355

 
$
2,357,655

 
$
(130,377
)
 
$
7,192,633

Cost of goods sold
—

 
3,010,820

 
1,478,661

 
(130,377
)
 
4,359,104

Gross margin
—

 
1,954,535

 
878,994

 
—

 
2,833,529

Facility and warehouse expenses
—

 
408,828

 
147,213

 
—

 
556,041

Distribution expenses
—

 
408,112

 
194,785

 
—

 
602,897

Selling, general and administrative expenses
32,946

 
490,530

 
304,857

 
—

 
828,333

Restructuring and acquisition related expenses
—

 
13,962

 
5,549

 
—

 
19,511

Depreciation and amortization
154

 
82,058

 
39,908

 
—

 
122,120

Operating (loss) income
(33,100
)
 
551,045

 
186,682

 
—

 
704,627

Other expense (income):
 
 
 
 
 
 
 
 
 
Interest expense
47,626

 
669

 
9,565

 
—

 
57,860

Intercompany interest (income) expense, net
(41,904
)
 
28,944

 
12,960

 
—

 
—

Interest and other expense (income), net
99

 
(7,414
)
 
5,052

 
—

 
(2,263
)
Total other expense, net
5,821

 
22,199

 
27,577

 
—

 
55,597

(Loss) income from continuing operations before (benefit) provision for income taxes
(38,921
)
 
528,846

 
159,105

 
—

 
649,030

(Benefit) provision for income taxes
(16,054
)
 
205,176

 
30,581

 
—

 
219,703

Equity in earnings (loss) of unconsolidated subsidiaries
(1,000
)
 
59

 
(5,163
)
 
—

 
(6,104
)
Equity in earnings of subsidiaries
447,090

 
24,632

 
—

 
(471,722
)
 
—

Net income
$
423,223

 
$
348,361

 
$
123,361

 
$
(471,722
)
 
$
423,223


98


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Income
(In thousands)
 
Year Ended December 31, 2014
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenue
$
—

 
$
4,649,391

 
$
2,221,831

 
$
(131,158
)
 
$
6,740,064

Cost of goods sold
—

 
2,813,427

 
1,405,882

 
(131,158
)
 
4,088,151

Gross margin
—

 
1,835,964

 
815,949

 
—

 
2,651,913

Facility and warehouse expenses
—

 
382,937

 
143,354

 
—

 
526,291

Distribution expenses
—

 
389,430

 
187,911

 
—

 
577,341

Selling, general and administrative expenses
25,770

 
460,516

 
276,602

 
—

 
762,888

Restructuring and acquisition related expenses
—

 
8,628

 
6,178

 
—

 
14,806

Depreciation and amortization
218

 
81,253

 
39,248

 
—

 
120,719

Operating (loss) income
(25,988
)
 
513,200

 
162,656

 
—

 
649,868

Other expense (income):
 
 
 
 
 
 
 
 
 
Interest expense
50,636

 
635

 
13,271

 
—

 
64,542

Intercompany interest (income) expense, net
(48,556
)
 
23,865

 
24,691

 
—

 
—

Loss on debt extinguishment
324

 
—

 
—

 
—

 
324

Interest and other expense (income), net
230

 
(8,359
)
 
5,243

 
—

 
(2,886
)
Total other expense, net
2,634

 
16,141

 
43,205

 
—

 
61,980

(Loss) income from continuing operations before (benefit) provision for income taxes
(28,622
)
 
497,059

 
119,451

 
—

 
587,888

(Benefit) provision for income taxes
(10,536
)
 
190,456

 
24,344

 
—

 
204,264

Equity in earnings (loss) of unconsolidated subsidiaries
—

 
40

 
(2,145
)
 
—

 
(2,105
)
Equity in earnings of subsidiaries
399,605

 
28,846

 
—

 
(428,451
)
 
—

Net income
$
381,519

 
$
335,489

 
$
92,962

 
$
(428,451
)
 
$
381,519



99


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Comprehensive Income
(In thousands)
 
Year Ended December 31, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net income
$
463,975

 
$
390,486

 
$
130,647

 
$
(521,133
)
 
$
463,975

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
Foreign currency translation
(175,639
)
 
(48,914
)
 
(177,911
)
 
226,825

 
(175,639
)
Net change in unrecognized gains/losses on derivative instruments, net of tax
9,023

 
133

 
389

 
(522
)
 
9,023

Net change in unrealized gains/losses on pension plans, net of tax
4,911

 
3,962

 
1,061

 
(5,023
)
 
4,911

Total other comprehensive loss
(161,705
)
 
(44,819
)
 
(176,461
)
 
221,280

 
(161,705
)
Total comprehensive income
$
302,270

 
$
345,667

 
$
(45,814
)
 
$
(299,853
)
 
$
302,270




LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Comprehensive Income
(In thousands)
 
Year Ended December 31, 2015
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net income
$
423,223

 
$
348,361

 
$
123,361

 
$
(471,722
)
 
$
423,223

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
Foreign currency translation
(69,817
)
 
(20,359
)
 
(65,878
)
 
86,237

 
(69,817
)
Net change in unrecognized gains/losses on derivative instruments, net of tax
2,469

 
—

 
294

 
(294
)
 
2,469

Net change in unrealized gains/losses on pension plans, net of tax
2,103

 
—

 
2,103

 
(2,103
)
 
2,103

Total other comprehensive loss
(65,245
)
 
(20,359
)
 
(63,481
)
 
83,840

 
(65,245
)
Total comprehensive income
$
357,978

 
$
328,002

 
$
59,880

 
$
(387,882
)
 
$
357,978




LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Comprehensive Income
(In thousands)
 
Year Ended December 31, 2014
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net income
$
381,519

 
$
335,489

 
$
92,962

 
$
(428,451
)
 
$
381,519

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
Foreign currency translation
(51,979
)
 
(17,710
)
 
(49,559
)
 
67,269

 
(51,979
)
Net change in unrecognized gains/losses on derivative instruments, net of tax
2,195

 
—

 
(444
)
 
444

 
2,195

Net change in unrealized gain on pension plans, net of tax
(10,452
)
 
—

 
(10,452
)
 
10,452

 
(10,452
)
Total other comprehensive loss
(60,236
)
 
(17,710
)
 
(60,455
)
 
78,165

 
(60,236
)
Total comprehensive income
$
321,283

 
$
317,779

 
$
32,507

 
$
(350,286
)
 
$
321,283


100


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
(In thousands)
 
December 31, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
33,030

 
$
35,360

 
$
159,010

 
$
—

 
$
227,400

Receivables, net
—

 
248,188

 
612,361

 
—

 
860,549

Intercompany receivables, net
2,805

 
11,237

 
8,837

 
(22,879
)
 
—

Inventories
—

 
1,149,763

 
785,474

 
—

 
1,935,237

Prepaid expenses and other current assets
1,640

 
43,165

 
42,963

 
—

 
87,768

Assets of discontinued operations
—

 
357,788

 
98,852

 
—

 
456,640

Total Current Assets
37,475

 
1,845,501

 
1,707,497

 
(22,879
)
 
3,567,594

Property and Equipment, net
239

 
527,705

 
283,632

 
—

 
811,576

Intangible Assets:
 
 
 
 
 
 
 
 
 
Goodwill
—

 
1,851,274

 
1,203,495

 
—

 
3,054,769

Other intangibles, net
—

 
153,689

 
430,542

 
—

 
584,231

Investment in Subsidiaries
5,067,297

 
242,032

 
—

 
(5,309,329
)
 
—

Intercompany Notes Receivable
1,510,534

 
800,283

 
—

 
(2,310,817
)
 
—

Equity Method Investments
—

 
336

 
183,131

 
—

 
183,467

Other Assets
59,726

 
25,177

 
22,347

 
(5,688
)
 
101,562

Total Assets
$
6,675,271

 
$
5,445,997

 
$
3,830,644

 
$
(7,648,713
)
 
$
8,303,199

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,309

 
$
244,074

 
$
388,390

 
$
—

 
$
633,773

Intercompany payables, net
11,237

 
8,837

 
2,805

 
(22,879
)
 
—

Accrued expenses:
 
 
 
 
 
 
 
 
 
Accrued payroll-related liabilities
6,404

 
58,187

 
54,164

 
—

 
118,755

Self-insurance reserves
—

 
39,059

 
489

 
—

 
39,548

Other accrued expenses
5,502

 
55,228

 
108,823

 
—

 
169,553

Other current liabilities
4,283

 
18,456

 
15,204

 
—

 
37,943

Current portion of long-term obligations
37,710

 
1,097

 
27,302

 
—

 
66,109

Liabilities of discontinued operations
—

 
110,890

 
34,214

 
—

 
145,104

Total Current Liabilities
66,445

 
535,828

 
631,391

 
(22,879
)
 
1,210,785

Long-Term Obligations, Excluding Current Portion
2,371,578

 
8,356

 
895,728

 
—

 
3,275,662

Intercompany Notes Payable
750,000

 
1,074,218

 
486,599

 
(2,310,817
)
 
—

Deferred Income Taxes
—

 
95,765

 
109,580

 
(5,688
)
 
199,657

Other Noncurrent Liabilities
44,299

 
90,722

 
39,125

 
—

 
174,146

Stockholders’ Equity
3,442,949

 
3,641,108

 
1,668,221

 
(5,309,329
)
 
3,442,949

Total Liabilities and Stockholders' Equity
$
6,675,271

 
$
5,445,997

 
$
3,830,644

 
$
(7,648,713
)
 
$
8,303,199




101


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
(In thousands)
 
December 31, 2015
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
17,616

 
$
13,432

 
$
56,349

 
$
—

 
$
87,397

Receivables, net
—

 
214,502

 
375,658

 
—

 
590,160

Intercompany receivables, net
3

 
—

 
13,544

 
(13,547
)
 
—

Inventories
—

 
1,060,834

 
495,718

 
—

 
1,556,552

Prepaid expenses and other current assets
15,254

 
44,810

 
46,539

 
—

 
106,603

Total Current Assets
32,873

 
1,333,578

 
987,808

 
(13,547
)
 
2,340,712

Property and Equipment, net
339

 
494,658

 
201,570

 
—

 
696,567

Intangible Assets:
 
 
 
 
 
 
 
 
 
Goodwill
—

 
1,640,745

 
678,501

 
—

 
2,319,246

Other intangibles, net
—

 
141,537

 
73,580

 
—

 
215,117

Investment in Subsidiaries
3,456,837

 
285,284

 
—

 
(3,742,121
)
 
—

Intercompany Notes Receivable
630,717

 
61,764

 
—

 
(692,481
)
 
—

Equity Method Investments
—

 
628

 
2,127

 
—

 
2,755

Other Assets
35,649

 
27,556

 
16,091

 
(5,856
)
 
73,440

Total Assets
$
4,156,415

 
$
3,985,750

 
$
1,959,677

 
$
(4,454,005
)
 
$
5,647,837

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
681

 
$
229,519

 
$
185,388

 
$
—

 
$
415,588

Intercompany payables, net
—

 
13,544

 
3

 
(13,547
)
 
—

Accrued expenses:
 
 
 
 
 
 
 
 
 
Accrued payroll-related liabilities
4,395

 
48,698

 
33,434

 
—

 
86,527

Self-insurance reserves
—

 
37,499

 
260

 
—

 
37,759

Other accrued expenses
5,399

 
43,387

 
75,680

 
—

 
124,466

Other current liabilities
284

 
15,953

 
15,359

 
—

 
31,596

Current portion of long-term obligations
21,041

 
1,425

 
33,568

 
—

 
56,034

Total Current Liabilities
31,800

 
390,025

 
343,692

 
(13,547
)
 
751,970

Long-Term Obligations, Excluding Current Portion
976,353

 
7,487

 
544,828

 
—

 
1,528,668

Intercompany Notes Payable
—

 
615,488

 
76,993

 
(692,481
)
 
—

Deferred Income Taxes
—

 
113,905

 
19,190

 
(5,856
)
 
127,239

Other Noncurrent Liabilities
33,580

 
70,109

 
21,589

 
—

 
125,278

Stockholders’ Equity
3,114,682

 
2,788,736

 
953,385

 
(3,742,121
)
 
3,114,682

Total Liabilities and Stockholders’ Equity
$
4,156,415

 
$
3,985,750

 
$
1,959,677

 
$
(4,454,005
)
 
$
5,647,837














102


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In thousands)
 
Year Ended December 31, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
308,299

 
$
539,318

 
$
99,894

 
$
(312,497
)
 
$
635,014

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
(36
)
 
(120,761
)
 
(86,277
)
 
—

 
(207,074
)
Investment and intercompany note activity with subsidiaries
(1,720,732
)
 
—

 
—

 
1,720,732

 
—

Acquisitions, net of cash acquired
—

 
(685,278
)
 
(664,061
)
 
—

 
(1,349,339
)
Proceeds from foreign exchange contracts
18,342

 
—

 
—

 
—

 
18,342

Other investing activities, net
3

 
(2,447
)
 
(169,413
)
 
—

 
(171,857
)
Net cash used in investing activities
(1,702,423
)
 
(808,486
)
 
(919,751
)
 
1,720,732

 
(1,709,928
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Proceeds from exercise of stock options
7,963

 
—

 
—

 
—

 
7,963

Taxes paid related to net share settlements of stock-based compensation awards
(4,438
)
 
—

 
—

 
—

 
(4,438
)
Debt issuance costs
(7,104
)
 
—

 
(9,450
)
 
—

 
(16,554
)
Proceeds from issuance of Euro notes
—

 
—

 
563,450

 
—

 
563,450

Borrowings under revolving credit facilities
1,744,408

 
—

 
892,188

 
—

 
2,636,596

Repayments under revolving credit facilities
(654,000
)
 
—

 
(1,094,664
)
 
—

 
(1,748,664
)
Borrowings under term loans
332,954

 
—

 
249,161

 
—

 
582,115

Repayments under term loans
(10,898
)
 
—

 
(244,894
)
 
—

 
(255,792
)
Borrowings under receivables securitization facility
—

 
—

 
106,400

 
—

 
106,400

Repayments under receivables securitization facility
—

 
—

 
(69,400
)
 
—

 
(69,400
)
Repayments of other debt, net
653

 
(2,935
)
 
(28,874
)
 
—

 
(31,156
)
Repayment of Rhiag debt and related payments
—

 
—

 
(543,347
)
 
—

 
(543,347
)
Payments of other obligations
—

 
(1,436
)
 


 
—

 
(1,436
)
Investment and intercompany note activity with parent
—

 
608,270

 
1,112,462

 
(1,720,732
)
 
—

Dividends
—

 
(312,497
)
 
—

 
312,497

 
—

Net cash provided by financing activities
1,409,538

 
291,402

 
933,032

 
(1,408,235
)
 
1,225,737

Effect of exchange rate changes on cash and equivalents
—

 
(157
)
 
(3,547
)
 
—

 
(3,704
)
Net increase in cash and equivalents
15,414

 
22,077

 
109,628

 
—

 
147,119

Cash and equivalents, beginning of period
17,616

 
13,432

 
56,349

 
—

 
87,397

Cash and equivalents of continuing and discontinued operations, end of period
33,030

 
35,509

 
165,977

 
—

 
234,516

Less: Cash and equivalents of discontinued operations, end of period
—

 
(149
)
 
(6,967
)
 
—

 
(7,116
)
Cash and equivalents, end of period
$
33,030

 
$
35,360

 
$
159,010

 
$
—

 
$
227,400



103


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In thousands)
 
Year Ended December 31, 2015
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
262,812

 
$
393,422

 
$
136,361

 
$
(248,313
)
 
$
544,282

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
(1
)
 
(85,868
)
 
(84,621
)
 
—

 
(170,490
)
Investment and intercompany note activity with subsidiaries
(66,712
)
 
—

 
—

 
66,712

 
—

Acquisitions, net of cash acquired
—

 
(118,963
)
 
(41,554
)
 
—

 
(160,517
)
Other investing activities, net
—

 
5,446

 
(4,432
)
 
—

 
1,014

Net cash used in investing activities
(66,713
)
 
(199,385
)
 
(130,607
)
 
66,712

 
(329,993
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Proceeds from exercise of stock options
8,168

 
—

 
—

 
—

 
8,168

Taxes paid related to net share settlements of stock-based compensation awards
(7,581
)
 
—

 
—

 
—

 
(7,581
)
Debt issuance costs
—

 
—

 
(97
)
 
—

 
(97
)
Borrowings under revolving credit facilities
212,000

 
—

 
101,142

 
—

 
313,142

Repayments under revolving credit facilities
(352,000
)
 
—

 
(93,282
)
 
—

 
(445,282
)
Repayments under term loans
(22,500
)
 
—

 
—

 
—

 
(22,500
)
Borrowings under receivables securitization facility
—

 
—

 
3,858

 
—

 
3,858

Repayments under receivables securitization facility
—

 
—

 
(35,758
)
 
—

 
(35,758
)
Repayments (borrowings) of other debt, net
(31,500
)
 
(3,457
)
 
5,261

 
—

 
(29,696
)
Payments of other obligations
—

 
(21,896
)
 
(895
)
 
—

 
(22,791
)
Investment and intercompany note activity with parent
—

 
60,910

 
5,802

 
(66,712
)
 
—

Dividends
—

 
(248,313
)
 
—

 
248,313

 
—

Net cash used in financing activities
(193,413
)
 
(212,756
)
 
(13,969
)
 
181,601

 
(238,537
)
Effect of exchange rate changes on cash and equivalents
—

 
48

 
(3,008
)
 
—

 
(2,960
)
Net increase (decrease) in cash and equivalents
2,686

 
(18,671
)
 
(11,223
)
 
—

 
(27,208
)
Cash and equivalents, beginning of period
14,930

 
32,103

 
67,572

 
—

 
114,605

Cash and equivalents, end of period
$
17,616

 
$
13,432

 
$
56,349

 
$
—

 
$
87,397



104


LKQ CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
(In thousands)
 
Year Ended December 31, 2014
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
289,035

 
$
427,249

 
$
(53,348
)
 
$
(274,225
)
 
$
388,711

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
(44
)
 
(85,182
)
 
(55,724
)
 
—

 
(140,950
)
Investment and intercompany note activity with subsidiaries
(477,007
)
 
(608
)
 
—

 
477,615

 
—

Acquisitions, net of cash acquired
—

 
(635,171
)
 
(140,750
)
 
—

 
(775,921
)
Other investing activities, net
—

 
768

 
(4,891
)
 
—

 
(4,123
)
Net cash used in investing activities
(477,051
)
 
(720,193
)
 
(201,365
)
 
477,615

 
(920,994
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Proceeds from exercise of stock options
9,324

 
—

 
—

 
—

 
9,324

Taxes paid related to net share settlements of stock-based compensation awards
(443
)
 
—

 
—

 
—

 
(443
)
Debt issuance costs
(3,675
)
 
—

 
(75
)
 
—

 
(3,750
)
Borrowings under revolving credit facilities
867,000

 
—

 
720,644

 
—

 
1,587,644

Repayments under revolving credit facilities
(727,000
)
 
—

 
(371,518
)
 
—

 
(1,098,518
)
Borrowings under term loans
11,250

 
—

 
—

 
—

 
11,250

Repayments under term loans
(16,875
)
 
—

 
—

 
—

 
(16,875
)
Borrowings under receivables securitization facility
—

 
—

 
95,050

 
—

 
95,050

Repayments under receivables securitization facility
—

 
—

 
(150
)
 
—

 
(150
)
Repayments of other debt, net
(1,921
)
 
(2,310
)
 
(35,820
)
 
—

 
(40,051
)
Payments of other obligations
—

 
(464
)
 
(41,528
)
 
—

 
(41,992
)
Other financing activities, net
(12,640
)
 
12,340

 
—

 
—

 
(300
)
Investment and intercompany note activity with parent
—

 
576,384

 
(98,769
)
 
(477,615
)
 
—

Dividends
—

 
(274,225
)
 
—

 
274,225

 
—

Net cash provided by financing activities
125,020

 
311,725

 
267,834

 
(203,390
)
 
501,189

Effect of exchange rate changes on cash and equivalents
—

 
(371
)
 
(4,418
)
 
—

 
(4,789
)
Net (decrease) increase in cash and equivalents
(62,996
)
 
18,410

 
8,703

 
—

 
(35,883
)
Cash and equivalents, beginning of period
77,926

 
13,693

 
58,869

 
—

 
150,488

Cash and equivalents, end of period
$
14,930

 
$
32,103

 
$
67,572

 
$
—

 
$
114,605



105


ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A.     CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2016 , the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Report of Management on Internal Control over Financial Reporting dated February 27, 2017
Management of LKQ Corporation and subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial statements.
We have excluded from our assessment the internal control over financial reporting at Rhiag, PGW and Andrew Page, all of which were acquired during 2016, and whose financial statements constitute 28% and 29% of net and total assets, respectively, 13% of revenue, and less than 1% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2016.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices, and actions taken to correct deficiencies as identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016 . Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors.
Based on this assessment, management determined that, as of December 31, 2016 , the Company maintained effective internal control over financial reporting. Deloitte & Touche LLP, independent registered public accounting firm, who audited and reported on the consolidated financial statements of the Company included in this report, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2016 .
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


106


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2016 , based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the accompanying Report of Management on Internal Control over Financial Reporting dated February 27, 2017 , management excluded from its assessment the internal control over financial reporting at Rhiag-Inter Auto Parts Italia S.p.A. (“Rhiag”), Pittsburgh Glass Works LLC (“PGW”) and Andrew Page Limited (“Andrew Page”), which were acquired on March 18, 2016, April 21, 2016, and October 4, 2016, respectively, and whose financial statements collectively constitute 28% and 29% of net and total assets, respectively, 13% of revenue, and less than 1% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2016. Accordingly, our audit did not include the internal control over financial reporting at Rhiag, PGW, or Andrew Page. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting dated February 27, 2017 . Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.    
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2016 of the Company and our report dated February 27, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding the Company's adoption of Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting."

/s/    DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 2017


107


ITEM 9B.     OTHER INFORMATION
None.


108


PART III
ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The information appearing under the caption "Election of our Board of Directors" in our Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2017 (the "Proxy Statement") is incorporated herein by reference.
Executive Officers
Our executive officers, their ages at December 31, 2016 , and their positions with us are set forth below. Our executive officers are elected by and serve at the discretion of our Board of Directors.
Name
 
Age
 
Position
Robert L. Wagman
 
52
 
President, Chief Executive Officer and Director
John S. Quinn
 
58
 
Chief Executive Officer and Managing Director, LKQ Europe
Dominick Zarcone
 
58
 
Executive Vice President and Chief Financial Officer
Victor M. Casini
 
54
 
Senior Vice President, General Counsel and Corporate Secretary
Walter P. Hanley
 
50
 
Senior Vice President - Development
Justin L. Jude
 
40
 
Senior Vice President of Operations - Wholesale Parts Division
Ashley T. Brooks
 
53
 
Senior Vice President and Chief Information Officer
Matthew J. McKay
 
39
 
Senior Vice President - Human Resources
Michael S. Clark
 
42
 
Vice President - Finance and Controller
Robert L. Wagman became our President and Chief Executive Officer in January 2012. He was elected to our Board of Directors in November  2011. Mr. Wagman was our President and Co-Chief Executive Officer from January 1, 2011 to January 1, 2012. Prior thereto, he had been our Senior Vice President of Operations—Wholesale Parts Division, with oversight of our wholesale late model operations, since August 2009. Prior thereto, from October 1998, Mr. Wagman managed our insurance company relationships, and from February 2004, added to his responsibilities the oversight of our aftermarket product operations. He was elected our Vice President of Insurance Services and Aftermarket Operations in August 2005. Before joining us, Mr. Wagman served from April 1995 to October 1998 as the Outside Sales Manager of Triplett Auto Parts, Inc., a recycled auto parts company that we acquired in July 1998. He started in our industry in 1987 as an Account Executive for Copart Auto Auctions, a processor and seller of salvage vehicles through auctions.
John S. Quinn became our Chief Executive Officer and Managing Director, LKQ Europe in February 2015. Prior to that he was our Executive Vice President and Chief Financial Officer from November 2009. Prior to joining our Company, he was the Senior Vice President, Chief Financial Officer and Treasurer of Casella Waste Systems, Inc., a company in the solid waste management services industry, from January 2009. From January 2001 to January 2009 he held various positions of increasing responsibility with Allied Waste Industries, Inc., a company also in the solid waste management services industry, including Senior Vice President of Finance from January 2005 to January 2009, Controller and Chief Accounting Officer from November 2006 to September 2007 and Vice President Financial Analysis and Planning from January 2003 to January 2005. From August 1987 to January 2001, he held various positions with Waste Management Inc.'s foreign subsidiaries, and Waste Management International, plc. in Canada and the United Kingdom. Prior to working for Waste Management, he worked for Ford Glass Ltd., a subsidiary of Ford Motor Company. In January 2017, he was elected to the Board of Directors of Mekonomen Group, an automotive spare parts chain in the Nordic region, of which we are 26.5% owner.
Dominick Zarcone became our Executive Vice President and Chief Financial Officer in March 2015. Prior to joining our company, he was the Managing Director and the Chief Financial Officer of Baird Financial Group, a capital markets and wealth management company, and certain of its affiliates from April 2011 to March 2015. He also served from April 2011 to March 2015 as Treasurer of Baird Funds, Inc., a family of fixed income and equity mutual funds managed by Robert W. Baird & Co. Incorporated, a registered broker/dealer. From February 1995 to April 2011, Mr. Zarcone was a Managing Director of the Investment Banking department of Robert W. Baird & Co. Incorporated. From February 1986 to February 1995, he was with the investment banking company Kidder, Peabody & Co., Incorporated, most recently as Senior Vice President of Investment Banking. Mr. Zarcone is a member of the Board of Directors of Generac Power Systems, Inc., a designer and manufacturer of power generation equipment and engine-powered products.
Victor M. Casini has been our Vice President, General Counsel and Corporate Secretary from our inception in February 1998. In March 2008, he was elected Senior Vice President. Mr. Casini was a member of our Board of Directors from May 2010 until May 2012. From July 1992 to December 2011, Mr. Casini was the Executive Vice President and General Counsel of Flynn

109


Enterprises, Inc., a venture capital, hedging and consulting firm. Mr. Casini served as Senior Vice President, General Counsel and Corporate Secretary of Discovery Zone, Inc., an operator and franchiser of family entertainment centers, from July 1992 until May 1995. Prior to July 1992, Mr. Casini practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd LLP (now known as K&L Gates LLP) in Chicago, Illinois for more than five years.
Walter P. Hanley joined us in December 2002 as our Vice President of Development, Associate General Counsel and Assistant Secretary. In December 2005, he became our Senior Vice President of Development. Mr. Hanley served as Senior Vice President, General Counsel and Secretary of Emerald Casino, Inc., an owner of a license to operate a riverboat casino in the State of Illinois, from June 1999 until August 2002. Mr. Hanley served as Senior Vice President, General Counsel and Secretary of Blue Chip Casino, Inc., an owner and operator of a riverboat gaming vessel in Michigan City, Indiana, from July 1996 until November 1999. Mr. Hanley served as Vice President and Associate General Counsel of Flynn Enterprises, Inc. from May 1995 until February 1998 and as Associate General Counsel of Discovery Zone, Inc. from March 1993 until May 1995. Prior to March 1993, Mr. Hanley practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd LLP (now known as K&L Gates LLP) in Chicago, Illinois.
Justin L. Jude became our Senior Vice President of Operations—Wholesale Parts Division in July 2015. Mr. Jude has been with us since February 2004 in various roles, including from March 2008 to February 2011 as Vice President - Supply Chain, from February 2011 to May 2014 as Vice President - Information Systems (North America), and from June 2014 to July 2015 as President of Keystone Automotive Operations, Inc., our specialty automotive business. Mr. Jude has been in the Company’s industry for over 18 years.
Ashley T. Brooks joined us as Senior Vice President—Chief Information Officer in May 2016. Prior to joining us, he held various Information Technology positions from 1999 to 2016 with Arrow Electronics, Inc., a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Mr. Brooks' most recent position with Arrow Electronics was Chief Information Officer, Global Components from April 2012 to May 2016.
Matthew J. McKay became our Senior Vice President of Human Resources in June 2016. Prior thereto, he served as our Associate General Counsel from December 2007 to May 2016, focusing on employment-related matters. Prior to joining us, Mr. McKay served as a law clerk for Judge William Bauer at the United States Court of Appeals for the Seventh Circuit.
Michael S. Clark has been our Vice President—Finance and Controller since February 2011. Prior thereto, he served as our Assistant Controller since May 2008. Prior to joining our Company, he was the SEC Reporting Manager of FMC Technologies, Inc., a global provider of technology solutions for the energy industry, from December 2004 to May 2008. Before joining FMC Technologies, Mr. Clark, a certified public accountant, worked in public accounting for more than eight years, leaving as a Senior Manager in the audit practice of Deloitte & Touche.
Code of Ethics
A copy of our Code of Ethics for Financial Officers is available free of charge through our website at www.lkqcorp.com .
Section 16 Compliance
Information appearing under the caption "Other Information—Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by reference.
Audit Committee
Information appearing under the caption "Corporate Governance—Committees of the Board—Audit Committee" in the Proxy Statement is incorporated herein by reference.

ITEM 11.     EXECUTIVE COMPENSATION
Information appearing under the captions "Director Compensation—Director Compensation Table," "Executive Compensation—Compensation Discussion and Analysis," "Corporate Governance—Compensation Committee Interlocks and Insider Participation" and "Executive Compensation—Compensation Tables" in the Proxy Statement is incorporated herein by reference.


ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

110


Information appearing under the caption "Other Information—Principal Stockholders" in the Proxy Statement is incorporated herein by reference.
The following table provides information about our common stock that may be issued under our equity compensation plans as of December 31, 2016 :
Equity Compensation Plan Information
Plan Category
 
Number of
securities to be issued
upon exercise of
outstanding options,
warrants, and rights
(a)
 
Weighted-average
exercise price of
outstanding options,
warrants, and rights
(b)
 
Number of securities remaining
available for future
issuance under equity
compensation plans (excluding
securities reflected in column  (a))
(c)
Equity compensation plans approved by stockholders
 
 
 
 
 
 
Stock options
 
2,623,217

 
$
9.19

 
 
Restricted stock units
 
1,873,737

 
$
—

 
 
Total equity compensation plans approved by stockholders
 
4,496,954

 
 
 
11,655,739

Equity compensation plans not approved by stockholders
 
—

 
$
—

 
—

Total
 
4,496,954

 
 
 
11,655,739

See Note 6, "Stock-Based Compensation ," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the equity incentive plans listed above.

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information appearing under the captions "Other Information—Certain Transactions," "Election of our Board of Directors" and "Corporate Governance - Director Independence" in the Proxy Statement is incorporated herein by reference.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing under the captions "Appointment of Our Independent Registered Public Accounting Firm—Audit Fees and Non-Audit Fees" and "Appointment of Our Independent Registered Public Accounting Firm—Policy on Audit Committee Approval of Audit and Non-Audit Services" in the Proxy Statement is incorporated herein by reference.


111


PART IV
ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
Reference is made to the information set forth in Part II, Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.
(a)(2) Financial Statement Schedules
Other than as set forth below, all schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not required under the related instructions, are not applicable, or the information has been provided in the consolidated financial statements or the notes thereto.
Schedule II—Valuation and Qualifying Accounts and Reserves
(in thousands)
Descriptions
 
Balance at
Beginning of
Period
 
Additions
Charged to
Costs and
Expenses
 
Deductions
 
Acquisitions  and
Other
 
Balance at End
of Period
 
 
 
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2016
 
$
24,583

 
$
13,280

 
$
(21,829
)
 
$
29,574

 
$
45,608

Year ended December 31, 2015
 
19,426

 
13,654

 
(9,486
)
 
989

 
24,583

Year ended December 31, 2014
 
14,360

 
9,814

 
(9,184
)
 
4,436

 
19,426

 
 
 
 
 
 
 
 
 
 
 
ALLOWANCE FOR ESTIMATED RETURNS, DISCOUNTS & ALLOWANCES:
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2016
 
32,774

 
$
1,088,426

 
$
(1,090,555
)
 
$
7,700

 
$
38,345

Year ended December 31, 2015
 
31,288

 
1,049,987

 
(1,051,439
)
 
2,938

 
32,774

Year ended December 31, 2014
 
26,636

 
955,615

 
(961,658
)
 
10,695

 
31,288


112


(a)(3) Exhibits
The exhibits to this Annual Report on Form 10-K are listed in Item 15(b) of this Annual Report on Form 10-K. Included in the exhibits listed therein are the following exhibits which constitute management contracts or compensatory plans or arrangements:
10.1
LKQ Corporation 401(k) Plus Plan dated August 1, 1999.
10.2
Amendment to LKQ Corporation 401(k) Plus Plan.
10.3
Trust for LKQ Corporation 401(k) Plus Plan.
10.4
LKQ Corporation 401(k) Plus Plan II, as amended and restated effective as of January 1, 2011.
10.5
LKQ Corporation 1998 Equity Incentive Plan, as amended.
10.6
Form of LKQ Corporation Award Agreement for options granted under the 1998 Equity Incentive Plan.
10.7
Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors.
10.8
Form of LKQ Corporation Restricted Stock Unit Agreement.
10.9
Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement.
10.10
LKQ Corporation Amended and Restated Stock Option and Compensation Plan for Non-Employee Directors, as amended.
10.11
Form of Indemnification Agreement between directors and officers of LKQ Corporation and LKQ Corporation.
10.12
LKQ Corporation Management Incentive Plan.
10.13
Form of LKQ Corporation Executive Officer Management Incentive Plan Award Memorandum.
10.14
Amended and Restated LKQ Corporation Long Term Incentive Plan.
10.15
Form of LKQ Corporation Executive Officer Long Term Incentive Plan Award Memorandum.
10.16
Consulting Agreement, as amended and restated, dated as of May 21, 2009 between LKQ Corporation and Joseph M. Holsten.
10.17
Amendment Agreement dated as of January 31, 2011 to the Consulting Agreement between LKQ Corporation and Joseph M. Holsten dated as of May 21, 2009.
10.25
Change of Control Agreement between LKQ Corporation and Robert L. Wagman dated as of July 24, 2014.
10.26
Change of Control Agreement between LKQ Corporation and John S. Quinn dated as of July 24, 2014.
10.27
Change of Control Agreement between LKQ Corporation and Walter P. Hanley dated as of July 24, 2014.
10.28
Change of Control Agreement between LKQ Corporation and Victor M. Casini dated as of July 24, 2014.
10.29
Change of Control Agreement between LKQ Corporation and Steven Greenspan dated as of July 24, 2014.
10.30
Change of Control Agreement between LKQ Corporation and Michael S. Clark dated as of July 24, 2014.
10.31
Change of Control Agreement between LKQ Corporation and Dominick P. Zarcone dated as of March 30, 2015.
10.32
Change of Control Agreement between LKQ Corporation and Justin L. Jude dated as of May 13, 2015.
10.33
Change of Control Agreement between LKQ Corporation and Ash T. Brooks dated as of May 2, 2016.
10.34
Change of Control Agreement between LKQ Corporation and Matthew J. McKay dated as of June 1, 2016.
10.35
LKQ Severance Policy for Key Executives.
10.41
Service Agreement between Euro Car Parts Limited and Sukhpal Singh Ahluwalia dated as of November 7, 2014.
10.42
Deed of Variation dated November 17, 2015 amending the Service Agreement dated November 7, 2014 between Euro Car Parts Limited and Sukhpal Singh Ahluwalia.
10.43
Services Agreement dated as of February 26, 2015 between LKQ Corporation and Robert L. Wagman.
10.44
Offer Letter to John S. Quinn dated February 12, 2015, as amended.
10.45
Services Agreement dated as of February 26, 2015 between LKQ Corporation and John S. Quinn.
10.46
Offer Letter to Dominick P. Zarcone dated February 12, 2015.
(b) Exhibits
3.1
Restated Certificate of Incorporation of LKQ Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 10-Q filed with the SEC on October 31, 2014).
3.2
Amended and Restated Bylaws of LKQ Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 8-K filed with the SEC on March 10, 2016).

113


4.1
Specimen of common stock certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A, Registration No. 333-107417 filed with the SEC on September 12, 2003).
4.2
Amendment and Restatement Agreement dated as of January 29, 2016 by and among LKQ Corporation, LKQ Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on February 2, 2016).
4.3
Amendment No. 1 dated as of December 14, 2016 to the Fourth Amended and Restated Credit Agreement, which is Exhibit A to the Amendment and Restatement Agreement dated as of January 29, 2016 by and among LKQ Corporation, LKQ Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent.
4.4
Indenture dated as of May 9, 2013 among LKQ Corporation, as Issuer, the Guarantors, and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on May 10, 2013).
4.5
Supplemental Indenture dated as of May 8, 2014 among LKQ Corporation, as Issuer, the Guarantors, and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s report on Form 10-Q filed with the SEC on August 1, 2014).
4.6
Indenture dated as of April 14, 2016 among LKQ Italia Bondco S.p.A., as Issuer, LKQ Corporation, certain subsidiaries of LKQ Corporation, the Trustee, and the Paying Agent, Transfer Agent and Registrar (incorporated herein by reference to Exhibit 4.1 to the Company’s report on Form 8-K filed with the SEC on April 18, 2016).
4.7
Supplemental Indenture dated as of June 13, 2016 among Auto Kelly a.s., LKQ Corporation, LKQ Italia Bondco S.p.A. and the Trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2016).
4.8
Supplemental Indenture dated as of June 13, 2016 among ELIT CZ, spol. s r.o., LKQ Corporation, LKQ Italia Bondco S.p.A. and the Trustee (incorporated herein by reference to Exhibit 4.3 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2016).
4.9
Supplemental Indenture dated as of June 13, 2016 among Rhiag-Inter Auto Parts Italia S.p.A., LKQ Corporation, LKQ Italia Bondco S.p.A. and the Trustee (incorporated herein by reference to Exhibit 4.4 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2016).
4.10
Supplemental Indenture dated as of June 13, 2016 among Bertolotti S.p.A., LKQ Corporation, LKQ Italia Bondco S.p.A. and the Trustee (incorporated herein by reference to Exhibit 4.5 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2016).
4.11
Supplemental Indenture dated as of September 9, 2016 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S. Bank National Association, as Trustee.
4.12
Supplemental Indenture dated as of September 9, 2016 among LKQ Corporation, LKQ Italia Bondco S.p.A., as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s report on Form 10-Q filed with the SEC on November 1, 2016).
10.1
LKQ Corporation 401(k) Plus Plan dated August 1, 1999 (incorporated herein by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.2
Amendment to LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.3
Trust for LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.4
LKQ Corporation 401(k) Plus Plan II, as amended and restated effective as of January 1, 2011 (incorporated herein by reference to Exhibit 10.8 to the Company’s report on Form 10-K for the year ended December 31, 2010).
10.5
LKQ Corporation 1998 Equity Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 10-Q filed with the SEC on November 1, 2016).
10.6
Form of LKQ Corporation Award Agreement for options granted under the 1998 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s report on Form 8-K filed with the SEC on January 11, 2005).
10.7
Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors (incorporated herein by reference to Exhibit 10.4 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
10.8
Form of LKQ Corporation Restricted Stock Unit Agreement.
10.9
Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on December 22, 2016).

114


10.10
LKQ Corporation Amended and Restated Stock Option and Compensation Plan for Non-Employee Directors, as amended (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 10-Q filed with the SEC on November 7, 2008).
10.11
Form of Indemnification Agreement between directors and officers of LKQ Corporation and LKQ Corporation (incorporated herein by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.12
LKQ Corporation Management Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 10-K filed with the SEC on March 2, 2015).
10.13
Form of LKQ Corporation Executive Officer Management Incentive Plan Award Memorandum (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 10, 2016).
10.14
Amended and Restated LKQ Corporation Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on November 7, 2014).
10.15
Form of LKQ Corporation Executive Officer Long Term Incentive Plan Award Memorandum (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on March 10, 2016).
10.16
Consulting Agreement, as amended and restated, dated as of May 21, 2009 between LKQ Corporation and Joseph M. Holsten (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on May 21, 2009).
10.17
Amendment Agreement dated as of January 31, 2011 to the Consulting Agreement between LKQ Corporation and Joseph M. Holsten dated as of May 21, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on February 2, 2011).
10.18
ISDA 2002 Master Agreement between Bank of America, N.A. and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.23 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.19
ISDA 2002 Master Agreement between Citizens Bank of Pennsylvania and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.24 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.20
ISDA 2002 Master Agreement between RBS Citizens, N.A. and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.25 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.21
ISDA 2002 Master Agreement between Fifth Third Bank and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.26 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.22
ISDA Master Agreement between Wells Fargo Bank, National Association and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
10.23
ISDA 2002 Master Agreement between HSBC Bank USA, National Association and LKQ Corporation, and related Schedule (incorporated herein by reference to Exhibit 10.23 to the Company’s report on Form 10-K filed with the SEC on February 25, 2016).
10.24
ISDA 2002 Master Agreement between Banco Bilbao Vizcaya Argentaria, S.A., LKQ Corporation, Euro Car Parts Limited and Keystone Automotive Industries ON. Inc., and related Schedule (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2016).
10.25
Change of Control Agreement between LKQ Corporation and Robert L. Wagman dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.26
Change of Control Agreement between LKQ Corporation and John S. Quinn dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.27
Change of Control Agreement between LKQ Corporation and Walter P. Hanley dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.4 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.28
Change of Control Agreement between LKQ Corporation and Victor M. Casini dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.29
Change of Control Agreement between LKQ Corporation and Steven Greenspan dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.6 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.30
Change of Control Agreement between LKQ Corporation and Michael S. Clark dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.8 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).

115


10.31
Change of Control Agreement between LKQ Corporation and Dominick Zarcone dated as of March 30, 2015 (incorporated herein by reference to Exhibit 10.7 to the Company’s report on Form 10-Q filed with the SEC on May 1, 2015).
10.32
Change of Control Agreement between LKQ Corporation and Justin Jude dated as of May 13, 2015 (incorporated herein by reference to Exhibit 10.32 to the Company’s report on Form 10-K filed with the SEC on February 25, 2016).
10.33
Change of Control Agreement between LKQ Corporation and Ash T. Brooks dated as of May 2, 2016 (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2016).
10.34
Change of Control Agreement between LKQ Corporation and Matthew J. McKay dated as of June 1, 2016.
10.35
LKQ Severance Policy for Key Executives (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.36
Receivables Sale Agreement dated as of September 28, 2012 among Keystone Automotive Industries, Inc., as an Originator, Greenleaf Auto Recyclers, LLC, as an Originator, and LKQ Receivables Finance Company, LLC, as Buyer (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on October 4, 2012).
10.37
Receivables Purchase Agreement dated as of September 28, 2012 among LKQ Receivables Finance Company, LLC, as Seller, LKQ Corporation, as Servicer, Victory Receivables Corporation, as a Conduit and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as a Financial Institution, as Administrative Agent and as a Managing Agent (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on October 4, 2012).
10.38
Amendment No. 1 to Receivables Purchase Agreement dated as of September 29, 2014 among LKQ Receivables Finance Company, LLC, as Seller, LKQ Corporation, as Servicer, Victory Receivables Corporation, as a Conduit and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as a Financial Institution, as Administrative Agent and as a Managing Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on October 3, 2014).
10.39
Performance Undertaking, dated as of September 28, 2012 by LKQ Corporation in favor of LKQ Receivables Finance Company, LLC (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on October 4, 2012).
10.40
Amendment No. 2 to Receivables Purchase Agreement dated as of November 28, 2016 among LKQ Receivables Finance Company, LLC, as Seller, LKQ Corporation, as Servicer, the Conduits, the Purchasers, the Managing Agents and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent.
10.41
Service Agreement between Euro Car Parts Limited and Sukhpal Singh Ahluwalia dated as of November 7, 2014 (incorporated herein by reference to Exhibit 10.2 to the Company's report on Form 8-K filed with the SEC on November 13, 2014).
10.42
Deed of Variation dated November 17, 2015 amending the Service Agreement dated November 7, 2014 between Euro Car Parts Limited and Sukhpal Singh Ahluwalia (incorporated by reference herein to Exhibit 10.40 to the Company’s report on Form 10-K filed with the SEC on February 25, 2016).
10.43
Services Agreement dated as of February 26, 2015 between LKQ Corporation and Robert L. Wagman (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).
10.44
Offer Letter to John S. Quinn dated February 12, 2015, as amended (incorporated by reference herein to Exhibit 10.41 to the Company’s report on Form 10-K filed with the SEC on February 25, 2016).
10.45
Services Agreement dated as of February 26, 2015 between LKQ Corporation and John S. Quinn (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).
10.46
Offer Letter to Dominick Zarcone dated February 12, 2015 (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).
10.47
Sale and Purchase Agreement dated as of December 22, 2015 among the Company, LKQ Italia S.r.l., a company incorporated in Italy and an indirect wholly-owned subsidiary of the Company, and the owners of Rhino HoldCo Limited, a company incorporated in England and Wales.
10.48
Agreement and Plan of Merger dated as of February 26, 2016 among LKQ Corporation, Pirate Merger Sub LLC, an indirect wholly-owned subsidiary of LKQ Corporation, KPGW Holding Company, LLC (“KPGW”), Kohlberg TE Investors VI, L.P. and the equityholders of KPGW (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 10-Q filed with the SEC on April 29, 2016).
10.49
Share Sale and Purchase Agreement dated as of November 27, 2016 between LKQ Corporation and AxMeko AB, an affiliate of Axel Johnson AB.
10.50
Stock and Asset Purchase Agreement dated as of December 18, 2016 among Vitro Automotive Glass LLC and VIMexico, S.A. de C.V., as Buyers, LKQ PGW Holdings, LLC, Pittsburgh Glass Works, LLC, KPGW European Holdco, LLC, and Pittsburgh Glass Works, ULC, as Sellers, PGW Holdings, LLC, as the Company, LKQ Corporation, Vitro S.A.B. de C.V. and Vitro Assets Corp.

116


12.1
Computation of Ratio of Earnings to Fixed Charges.
14.1
LKQ Corporation Code of Ethics (incorporated by reference to Exhibit 14.1 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
21.1
List of subsidiaries, jurisdictions and assumed names.
23.1
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document




117


ITEM 16.     FORM 10-K SUMMARY
Not applicable.


118


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 27, 2017 .
 
 
LKQ CORPORATION
 
 
By:
/s/ R OBERT  L. W AGMAN
 
Robert L. Wagman
 
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 27, 2017 .

Signature
Title
Principal Executive Officer:
 
/s/ ROBERT L. WAGMAN
President and Chief Executive Officer
Robert L. Wagman
 
Principal Financial Officer:
 
/s/ DOMINICK ZARCONE
Executive Vice President and Chief Financial Officer
Dominick Zarcone
 
Principal Accounting Officer:
 
/s/ MICHAEL S. CLARK
Vice President—Finance and Controller
Michael S. Clark
 
A Majority of the Directors:
 
/s/ SUKHPAL SINGH AHLUWALIA
Director
Sukhpal Singh Ahluwalia
 
/s/ A. CLINTON ALLEN
Director
A. Clinton Allen
 
/s/ ROBERT M. HANSER
Director
Robert M. Hanser
 
/s/ JOSEPH M. HOLSTEN
Director
Joseph M. Holsten
 
/s/ BLYTHE J. MCGARVIE
Director
Blythe J. McGarvie
 
/s/ PAUL M. MEISTER
Director
Paul M. Meister
 
/s/ JOHN F. O'BRIEN
Director
John F. O'Brien
 
/s/ GUHAN SUBRAMANIAN
Director
Guhan Subramanian
 
/s/ ROBERT L. WAGMAN
Director
Robert L. Wagman
 
/s/ WILLIAM M. WEBSTER, IV
Director
William M. Webster, IV
 



119
Exhibit 4.3


EXECUTION COPY


AMENDMENT NO. 1
Dated as of December 14, 2016
to
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 25, 2011,
as amended and restated as of September 30, 2011,
as further amended and restated as of May 3, 2013,
as further amended and restated as of March 27, 2014,
as further amended and restated as of January 29, 2016
THIS AMENDMENT NO. 1 (this “ Amendment ”) is made as of December 14, 2016 by and among LKQ Corporation, a Delaware corporation (the “ Company ”), LKQ Delaware LLP, a Delaware limited liability partnership (the “ Canadian Primary Borrower ”), LKQ Euro Limited, a company organized under the laws of England and Wales (“ LKQ Euro Limited ”), LKQ Netherlands B.V., a besloten vennootschap met beperkte aansprakelijkheid organized under the laws of The Netherlands (“ LKQ Netherlands ”), Atracco Group AB, a private limited liability company organized under the laws of the Sweden (“ Atracco ”), LKQ UK Finance 1 LLP, a limited liability partnership formed under the laws of England and Wales (“ LKQ UK Finance 1 ”), LKQ UK Finance 2 LLP, a limited liability partnership formed under the laws of England and Wales (“ LKQ UK Finance 2 ” and, together with LKQ UK Finance 1, the “ Departing UK Borrowers ”), the financial institutions listed on the signature pages hereof and Wells Fargo Bank, National Association, as Administrative Agent (the “ Administrative Agent ’), under that certain Fourth Amended and Restated Credit Agreement dated as of March 25, 2011, as amended and restated as of September 30, 2011, as further amended and restated as of May 3, 2013, as further amended and restated as of March 27, 2014, as further amended and restated as of January 29, 2016 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Company, the Canadian Primary Borrower, LKQ Euro Limited, LKQ Netherlands, Atracco, the other Subsidiary Borrowers from time to time party thereto (collectively with the Company, the Canadian Primary Borrower, LKQ Euro Limited, LKQ Netherlands, Atracco and (solely for purposes of consenting to this Amendment) the Departing UK Borrowers, the “ Borrowers ”), the Lenders and the Administrative Agent (as further amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement.
WHEREAS, certain of the Lenders extended Additional Term Loans to LKQ Netherlands in an aggregate amount equal to €230,000,000 as of the Restatement Effective Date (such Additional Term Loans outstanding as of the date hereof, the “ Existing Euro Term Loans ” and, each Lender holding Existing Euro Term Loans, an “ Affected Term Lender ”);
WHEREAS, LKQ Netherlands intends to use the proceeds of Euro-denominated Multicurrency Tranche Revolving Loans (the “ Netherlands First Amendment Revolving Loans ”) borrowed by LKQ Netherlands pursuant to the Credit Agreement to prepay in full the Existing Euro Term Loans, together with all interest, fees and other amounts owing in respect thereof, on the date hereof (such prepayment in full, the “ Existing Euro Term Loan Prepayment ”);



WHEREAS, the Company has requested that each Affected Term Lender provide the Incremental US Term Loans to the Company pursuant to Section 2 below and that the Lenders permit the Company to use the proceeds of such Incremental US Term Loans to enter into a Hedge Agreement, the proceeds from such Hedge Agreement to be used to prepay in full the Netherlands First Amendment Revolving Loans, together with all interest, fees and other amounts owing in respect thereof, on the date hereof (such prepayment in full, the “ Netherlands First Amendment Revolving Loan Prepayment ”);
WHEREAS, the Company has advised the Lenders that each of the Departing UK Borrowers shall be terminated as Subsidiary Borrowers under the Credit Agreement and, after such termination, the Company intends to dissolve the Departing UK Borrowers as permitted under the terms of the Credit Agreement;
WHEREAS, the Borrowers have requested that the requisite Lenders and the Administrative Agent agree to certain other amendments and other modifications to the Credit Agreement; and
WHEREAS, the Borrowers, the Lenders party hereto and the Administrative Agent have so agreed on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto have agreed to enter into this Amendment.
1. Existing Euro Term Loan Prepayment . Effective as of the Amendment No. 1 Effective Date (as defined below), each Affected Term Lender hereby consents to the Existing Euro Term Loan Prepayment and, upon receipt of such prepayment in accordance with the terms of this Amendment and the Credit Agreement, LKQ Netherlands shall have no Additional Term Loans outstanding under the Credit Agreement. The parties hereto hereby agree that any and all required notice periods under the Credit Agreement, and all compensation required to be paid to the Affected Term Lenders for all losses, costs and expenses under Section 2.16 of the Credit Agreement, in connection with the Existing Euro Term Loan Prepayment on the Amendment No. 1 Effective Date are hereby waived and of no force and effect.

2. Incremental US Term Loans . Effective as of the Amendment No. 1 Effective Date, (a) the Lenders hereby consent to the Company entering into a Hedge Agreement to consummate the Netherlands First Amendment Revolving Loan Prepayment and (b) each undersigned Affected Term Lender agrees (severally and not jointly), subject to the terms and conditions of the Credit Agreement (as amended hereby), that on the date hereof it shall enter into a tranche of Incremental Term Loans made to the Company in Dollars pursuant to Section 2.20 of the Credit Agreement (as amended hereby) with a commitment equal to the amount set forth on Schedule 2.01 to this Amendment (such Incremental Term Loans, the “ Incremental US Term Loans ”). The Incremental US Term Loans shall constitute “Term Loans” made and “Obligations” incurred under (and shall be governed by the terms of) the Credit Agreement (as amended hereby) and the other Loan Documents. The proceeds of the Incremental US Term Loans shall be used solely to enter into a Hedge Agreement, the proceeds of which will be used to repay the Netherlands First Amendment Revolving Loans outstanding under the Credit Agreement as described in the preamble to this Amendment. Each Multicurrency Tranche Lender party hereto hereby agrees, solely with respect to itself, that any and all compensation required to be paid to such Multicurrency Tranche Lender for all losses, costs and expenses under Section 2.16 of the Credit Agreement in connection with the Netherlands First Amendment Revolving Loan Prepayment on the Amendment No. 1 Effective Date are hereby waived and of no force and effect. The parties hereto hereby agree that any and all required notice periods under the Credit Agreement in connection with the Netherlands First Amendment Revolving Loan Prepayment on the Amendment No. 1 Effective Date are hereby waived and of no force and effect.

3. Termination of Departing UK Borrowers . Effective as of the Amendment No. 1 Effective Date, the Company hereby terminates the status of each Departing UK Borrower as a Subsidiary Borrower under the Credit Agreement and the Administrative Agent and the Lenders hereby release their Liens in all of the Capital Stock


of each Departing UK Borrower. In addition, the Administrative Agent and the Lenders hereby consent to the transfer


by LKQ UK Finance 1 LLC and LKQ UK Finance 2 LLC and any other Subsidiary of the Company of the Capital Stock in each Departing UK Borrower to one or more Subsidiaries of the Company. The Company represents and
warrants that no Loans made to any Departing UK Borrower are outstanding as of the date hereof and that all amounts payable by each Departing UK Borrower in respect of interest and/or fees (and, to the extent notified by the Administrative Agent or any Lender, any other amounts payable under the Credit Agreement) pursuant to the Credit Agreement have been paid in full on or prior to the date hereof. The parties hereto agree that this Section 3 shall constitute a “Borrowing Subsidiary Termination” in respect of the Departing UK Subsidiaries for all purposes under the Credit Agreement.

4. Amendments to the Credit Agreement . Effective as of the Amendment No. 1 Effective Date, the parties hereto agree to amend the Credit Agreement as follows:
(a) The definition of “Borrowing” set forth in Section 1.01 of the Credit Agreement is amended to add the phrase “and Class” immediately following the phrase “Term Loans of the same Type” appearing therein.
(b) The definition of “Class” set forth in Section 1.01 of the Credit Agreement is amended to (i) add the phrase “Incremental US Term Loans,” immediately following the phrase “Initial Term Loans,” appearing therein and (ii) add the phrase “an Incremental US Term Loan Commitment” immediately following the phrase “an Initial Term Loan Commitment,” appearing therein.
(c) The definition of “Commitment” set forth in Section 1.01 of the Credit Agreement is amended to (i) add the phrase “, Incremental US Term Loan Commitment” immediately following the phrase “Initial Term Loan Commitment” appearing therein and (ii) add the parenthetical “(other than the Commitment of any Incremental US Term Lender, which shall be as of the Amendment No. 1 Effective Date)” immediately following the phrase “Restatement Effective Date” appearing therein.
(d) The definition of “Defaulting Lender” set forth in Section 1.01 of the Credit Agreement is amended to amend and restate clause (d) thereof to read as “(d) has become the subject of (A) a Bankruptcy Event or (B) a Bail-In Action”.
(e) The definition of “Incremental Amount” set forth in Section 1.01 of the Credit Agreement is amended to add the parenthetical “(other than the Incremental US Term Loans)” immediately following the phrase “the aggregate principal amount of all Incremental Term Loans” appearing therein.
(f) Each of the definitions of “Adjusted LIBO Rate” and “LIBOR Market Index Rate” set forth in Section 1.01 of the Credit Agreement is amended to replace the first parenthetical appearing therein with “(to 1/1000 of 1% with no rounding)”.
(g) Section 1.01 of the Credit Agreement is amended to amend and restate the applicable definitions or add the relevant new definitions thereto in the appropriate alphabetical order, as the case may be, as set forth below:
“ Amendment No. 1 Effective Date ” means December 14, 2016.
“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ Continuing Directors ” means the directors of the Company on the Original Effective Date, after giving effect to the transactions contemplated hereby, and each other director of the Company, if, in each case, such other director’s nomination for election to the board of directors of the Company is recommended or approved by at least a majority of the then Continuing Directors.
“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.



“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“ Incremental US Term Lenders ” means, as of any date of determination, each Lender that holds Incremental US Term Loans.
“ Incremental US Term Loan Commitment ” means, with respect to each Incremental US Term Lender, such Term Lender’s Incremental US Term Loan Percentage of the Incremental US Term Loans.
“ Incremental US Term Loan Percentage ” means the percentage equal to a fraction the numerator of which is such Lender’s outstanding principal amount of the Incremental US Term Loans and the denominator of which is the aggregate outstanding amount of the Incremental US Term Loans of all Incremental US Term Lenders; provided that in the case of Section 2.24 when a Defaulting Lender shall exist, any such Defaulting Lender’s Incremental US Term Loan Commitment shall be disregarded in the calculation.
“ Incremental US Term Loans ” means the Incremental Term Loans made by the applicable Incremental US Term Lenders to the Company on the Amendment No. 1 Effective Date. The aggregate outstanding principal amount of the Incremental US Term Loans as of the Amendment No. 1 Effective Date is $243,636,988 and each Incremental US Term Lender’s respective portion of the Incremental US Term Loans on the Amendment No. 1 Effective Date is set forth on Schedule 2.01 .
“ Term Loan Commitment ” means an Initial Term Loan Commitment, an Incremental US Term Loan Commitment or an Additional Term Loan Commitment and “Term Loan Commitments” means the Initial Term Loan Commitments, the Incremental US Term Loan Commitments and the Additional Term Loan Commitments, collectively.
“ Term Loans ” means the Initial Term Loans, the Incremental US Term Loans and the Additional Term Loans.
“ UK Borrowers ” means (1) LKQ Euro Limited, a company organized under the laws of England and Wales and (2) any other Foreign Subsidiary Borrower organized under the laws of England and Wales that is designated as a UK Borrower by the Company.
“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
(h) Section 1.03 of the Credit Agreement is amended to add the following as a new clause (d) thereof:
(d) In this Agreement, where it relates to a Person incorporated or formed or having its centre of main interests in Jersey, a reference to:


(i)      a “winding-up”, “administration”, “reorganisation”, “dissolution”, “moratorium”, “voluntary arrangement”, “scheme of arrangement” or the like, or a “composition”, “compromise”,


“assignment”, “arrangement”, “expropriation”, “attachment”, “sequestration”, “distress”, “execution” or any analogous process with any creditor or the like includes, without limitation, bankruptcy (as that term is interpreted pursuant to Article 8 of the Interpretation (Jersey) Law 1954), a compromise or arrangement of the type referred to in Part 18A of the Companies (Jersey) Law 1991, any procedure or process referred to in Part 21 of the Companies (Jersey) Law 1991, and any other similar proceedings affecting the rights of creditors generally under Jersey law, and shall be construed so as to include any equivalent or analogous proceedings;
(ii)      a “liquidator”, “receiver”, “administrative receiver”, “administrator” or the like includes, without limitation, the Viscount of the Royal Court of Jersey, autorisés or any other Person performing the same function of each of the foregoing; and
(iii)      a “mortgage”, “charge”, “pledge”, “lien” or a “security interest” includes, without limitation, any hypothèque whether conventional, judicial granted or arising by operation of law and any security interest created pursuant to the Security Interest (Jersey) Law 1983 or Security Interests (Jersey) Law 2012 and any related legislation.
(i) Section 2.10(a) of the Credit Agreement is amended to amend and restate the second sentence thereof to read as “With respect to the Term Loans, (i) the Company shall repay the Term Loans (other than the Incremental US Term Loans) then owing by the Company on the last day of (a) each fiscal quarter of the Company ending on June 30, 2016, September 30, 2016 and December 31, 2016 in the aggregate principal amount equal to $3,124,650 and (b) each fiscal quarter of the Company ending thereafter in the aggregate principal amount equal to $6,249,300, and (ii) the Company shall repay the Incremental US Term Loans then owing by the Company on the last day of (a) each fiscal quarter of the Company ending on December 31, 2016 in the aggregate principal amount equal to $1,522,731 and (b) each fiscal quarter of the Company ending thereafter in the aggregate principal amount equal to $3,045,462, in the case of each of the foregoing clauses (i) and (ii), as adjusted from time to time pursuant to Section 2.11(a).”
(j) Section 2.20 of the Credit Agreement is amended to (i) delete the phrase “The Company” appearing at the start of each of the first two sentences thereof and replace each such phrase with “The Borrowers”, (ii) add the parenthetical “(other than the Incremental US Term Loans)” immediately prior to the phrase “does not exceed the Incremental Amount” appearing in the first sentence thereof and (iii) delete the phrase “the Company” appearing in clause (iii) thereof and in the fourth sentence thereof and replace each such phrase with “the applicable Borrower”.
(k) Section 2.24 of the Credit Agreement is amended to add the phrase “or a Bail-In Action” immediately following the phrase “a Bankruptcy Event” appearing therein.
(l) Article III of the Credit Agreement is amended to add the following as new Sections 3.23, 3.24 and 3.25 thereof, respectively:
SECTION 3.23. EEA Financial Institutions . No Loan Party is an EEA Financial Institution.
SECTION 3.24. Jersey Incorporated Borrowers . Each Borrower incorporated in Jersey:
(a) has filed all returns, resolutions and documents required by any legislation to be filed by it with the Jersey Registrar of Companies or the Jersey Financial Services Commission and such returns, resolutions and documents have been duly prepared, kept and filed (within all applicable time limits) and are correct;
(b) is not a “financial services company” or a “utility company” (as respectively defined in the Income Tax (Jersey) Law 1961);
(c) is exempt from the duty to hold a business licence under the Control of Housing and Work (Jersey) Law 2012;
(d) does not conduct any unauthorised “financial services business” (as defined in the Financial Services (Jersey) Law 1998); and



(e) is and will remain an “international services entity” (within the meaning of the Goods and Services Tax (Jersey) Law 2007).
SECTION 3.25. Subsidiary Borrowers . Each of the Company and each Subsidiary Borrower represents and warrants that:
(a) the representations and warranties of the Company and each Subsidiary Borrower in the Credit Agreement relating to each Subsidiary Borrower and this Agreement are true and correct on and as of the date hereof, other than representations given as of a particular date, in which case they are true and correct as of that date;
(b) such Subsidiary Borrower is subject to civil and commercial Requirements of Law with respect to its obligations under this Agreement and the other Loan Documents to which it is a party (collectively as to such Subsidiary Borrower, the “ Applicable Subsidiary Borrower Documents ”), and the execution, delivery and performance by such Subsidiary Borrower of the Applicable Subsidiary Borrower Documents constitute and will constitute private and commercial acts and not public or governmental acts;
(c) neither such Subsidiary Borrower nor any of its property has any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) under the laws of the jurisdiction in which such Subsidiary Borrower is organized and existing in respect of its obligations under the Applicable Subsidiary Borrower Documents;
(d) the Applicable Subsidiary Borrower Documents are in proper legal form under the Requirements of Law of the jurisdiction in which such Subsidiary Borrower is organized and existing for the enforcement thereof against such Subsidiary Borrower under the Requirements of Law of such jurisdiction, and to ensure the legality, validity, enforceability, priority or admissibility in evidence of the Applicable Subsidiary Borrower Documents;
(e) it is not necessary to ensure the legality, validity, enforceability, priority or admissibility in evidence of the Applicable Subsidiary Borrower Documents that the Applicable Subsidiary Borrower Documents be filed, registered or recorded with, or executed or notarized before, any court or other authority in the jurisdiction in which such Subsidiary Borrower is organized and existing or that any registration charge or stamp or similar tax be paid on or in respect of the Applicable Subsidiary Borrower Documents or any other document, except for (i) any such filing, registration, recording, execution or notarization as has been made or is not required to be made until the Applicable Subsidiary Borrower Document or any other document is sought to be enforced and (ii) any charge or tax as has been timely paid;
(f) there is no tax, levy, impost, duty, fee, assessment or other governmental charge, or any deduction or withholding, imposed by any Governmental Authority in or of the jurisdiction in which such Subsidiary Borrower is organized and existing either (i) on or by virtue of the execution or delivery of the Applicable Subsidiary Borrower Documents or (ii) on any payment to be made by such Subsidiary Borrower pursuant to the Applicable Subsidiary Borrower Documents, except as has been disclosed to the Administrative Agent; and
(g) the execution, delivery and performance of the Applicable Subsidiary Borrower Documents executed by such Subsidiary Borrower are, under applicable foreign exchange control regulations of the jurisdiction in which such Subsidiary Borrower is organized and existing, not subject to any notification or authorization except (x) such as have been made or obtained or (y) such as cannot be made or obtained until a later date ( provided that any notification or authorization described in clause (ii) shall be made or obtained as soon as is reasonably practicable).


(m) Article IX of the Credit Agreement is amended to add the following as a new Section


9.18 thereof:
SECTION 9.18. Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)      the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b)      the effects of any Bail-In Action on any such liability, including, if applicable:
(i)
a reduction in full or in part or cancellation of any such liability;
(ii)
a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii)
the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.
(n) Article X of the Credit Agreement is amended to add the following as a new paragraph thereof: “Each Borrower incorporated or established in Jersey waives any right it may have (whether by virtue of the droit de discussion or division or otherwise) to require that any Secured Party, before enforcing this guarantee, takes any action, exercises any recourse or seeks a declaration of bankruptcy against any other Borrower or any other Person, makes any claim in a bankruptcy, liquidation, administration or insolvency of any other Borrower or any other Person or enforces or seeks to enforce any other right, claim, remedy or recourse against any other Loan Party or any other Person or that any Secured Party, in order to preserve any of its rights against a guarantor under this Article X or under any other Loan Document, joins another Borrower as a party to any proceedings against any Loan Party or any Loan Party as a party to any proceedings against a guarantor or takes any other procedural steps or that any Secured Party divides the liability of another Borrower under the guarantee given under this Article X or under any other Loan Document with any other Person.”
(o) Schedule 2.01 of the Credit Agreement is amended and restated in its entirety in the form of Schedule 2.01 attached to this Amendment.
5. Conditions of Effectiveness . The effectiveness of this Amendment (the “ Amendment No. 1 Effective Date ”) is subject to the conditions precedent that:
(a) the Administrative Agent shall have received (i) counterparts of this Amendment duly executed by each Borrower (including each Departing UK Borrower), each Affected Term Lender, the Required Lenders and the Administrative Agent and (ii) the Consent and Reaffirmation attached hereto duly executed by the Subsidiary Guarantors;
(b) the Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Amendment No. 1 Effective Date) of (i) Sheppard Mullin Richter & Hampton LLP, U.S. counsel to the Loan Parties and (ii) Victor M. Casini, internal counsel to the Loan Parties, in each case in form and substance reasonably satisfactory to the Administrative Agent and covering such matters relating to the Loan Parties, the Loan Documents, this Amendment and the transactions contemplated hereby as the Administrative Agent shall reasonably request. The Company hereby requests such counsel to deliver such opinions;
(c) the Administrative Agent shall have received a certificate signed by a Responsible Officer of the Company certifying, as of the date hereof and after giving effect to the amendments and transactions contemplated hereby, that (i) the conditions set forth in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement are satisfied


and (ii) the Company is in compliance (on a Pro Forma Basis) with the covenants contained in Section 6.18 of the Credit Agreement;
(d) the Administrative Agent shall have received such other documents, certificates and other deliveries as the Administrative Agent or its counsel may reasonably request, including, without limitation, relating to the organization, existence and good standing (or the equivalent in the applicable jurisdiction) of the Company, the authorization of the transactions contemplated hereby and by the Credit Agreement and any other legal matters relating to the Company, the Loan Documents or the transactions contemplated hereby or thereby, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel;
(e) the Administrative Agent shall have received (i) a Borrowing Request executed by LKQ Netherlands in respect of the Netherlands First Amendment Revolving Loans to be made on the date hereof and (ii) a Borrowing Request executed by the Company in respect of the Incremental US Term Loans to be made on the date hereof;
(f) the Administrative Agent shall have received (i) all fees and other amounts due and payable on or prior to the Amendment No. 1 Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers under the Loan Documents and (ii) all accrued and unpaid interest under the Credit Agreement in respect of the Existing Euro Term Loans; and
(g) substantially concurrently with the effectiveness of this Amendment and the funding of the Netherlands First Amendment Revolving Loans and the Incremental US Term Loans on the date hereof, LKQ Netherlands shall have prepaid (i) the Existing Euro Term Loans, together with all interest, fees and other amounts owing in respect thereof, with the proceeds of the Netherlands First Amendment Revolving Loans and (ii) the Netherlands First Amendment Revolving Loans, together with all interest, fees and other amounts owing in respect thereof, with the proceeds of a Hedge Agreement entered into by the Company with the proceeds of the Incremental US Term Loans. In connection with the foregoing, the Administrative Agent shall have made such reallocations, sales, assignments or other relevant actions in respect of each Lender’s credit exposure under the Credit Agreement as are necessary in order that each such Lender’s Credit Exposure and outstanding Loans under the Credit Agreement reflects such Lender’s Applicable Percentage of the outstanding aggregate Credit Exposures after giving effect to the transactions contemplated hereby on the Amendment No. 1 Effective Date.
The Administrative Agent shall notify in writing the Company and the Lenders of the Amendment No. 1 Effective Date, and such notice shall be conclusive and binding.
6. Representations and Warranties of the Borrowers . Each of the Borrowers (other than the Departing UK Borrowers) hereby represents and warrants as follows:
(a) This Amendment and the Credit Agreement as modified hereby constitute legal, valid and binding obligations of such Borrower, enforceable in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
(b) As of the date hereof and giving effect to the terms of this Amendment, (i) no Default or Event of Default has occurred and is continuing and (ii) the representations and warranties of such Borrower set forth in Article III of the Credit Agreement (as amended hereby) are true and correct in all material respects (or in all respects if the applicable representation and warranty is qualified by materiality or Material Adverse Effect) on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date.
7. Reference to and Effect on the Credit Agreement .
(a) Upon the effectiveness hereof, each reference to the Credit Agreement in the Credit Agreement or any other loan document shall mean and be a reference to the Credit Agreement as amended hereby.
(b) The Credit Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.
(c) Except with respect to the subject matter hereof, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders, nor constitute a waiver of any provision of the Credit Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith.


(d) This Amendment is an Incremental Term Loan Amendment and a Loan Document.



8. Governing Law; Jurisdiction . This Amendment shall be construed in accordance with and governed by the law of the State of New York. Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Amendment and any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Amendment or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Amendment or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.
9. Headings . Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
10. Counterparts . This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment by telecopy, e-mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Amendment.  The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any  document to be signed in connection with this Amendment and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.





[Signature Pages Follow]




IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.

LKQ CORPORATION, as the Company
 
 
By /s/ Dominick Zarcone
 
Name: Dominick Zarcone
 
Title: Executive Vice President and Chief Financial Officer
 
 
LKQ DELAWARE LLP, as the Canadian Primary Borrower
 
 
By /s/ Dominick Zarcone
 
Name: Dominick Zarcone
 
Title: Vice President and Chief Financial Officer
 
 


    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

LKQ netherlands b.v., as a Dutch Borrower
 
 
By /s/ S.M. Galvin
 
Name: S.M. Galvin
 
Title: Managing Director
 
 


ATRACCO GROUP AB, as a Swedish Borrower
 
 
By /s/ Mattias Pettersson
 
Name: Mattias Pettersson
 
Title:
 
 
By /s/ Simon M. Galvin
Name: Simon M. Galvin
Title: Chairman
 
 



    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

LKQ Euro LIMITED, as a UK Borrower
 
 
By /s/ Joseph Holsten
 
Name: Joseph Holsten
 
Title: Director
 
 


Executed by LKQ UK FINANCE 1 LLP,
as a Departing UK Borrower,
acting by LKQ Finance 2 LLC as a member of LKQ UK Finance 1 LLP, in the presence of:
                                                                                                                  ...... /s/ Walter Hanley .................................
                                                                                                                Walter Hanley
                                                                                                        Duly authorised for and on behalf of LKQ Finance 2 LLC
.. /s/ Kari Kloc .....................................

SIGNATURE OF WITNESS

NAME OF WITNESS: .................Kari Kloc.....................

ADDRESS OF WITNESS: .......................................

.....500 W Madison St. Ste. 2800..................................

...Chicago, IL 60661....................................


OCCUPATION OF WITNESS: .......Paralegal...............................




    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

Executed by LKQ UK FINANCE 2 LLP ,
as a Departing UK Borrower,
acting by LKQ UK Finance 1 LLP as a member of LKQ UK Finance 2 LLP, LKQ Finance 1 LLP itself acting by LKQ Finance 2 LLC as a member of LKQ UK Finance 1 LLP, in the presence of:
                                                                                                          ...... /s/ Walter Hanley .................................
                                                                                                                Walter Hanley
                                                                                                        Duly authorised for and on behalf of LKQ Finance 2 LLC
.. /s/ Kari Kloc .....................................

SIGNATURE OF WITNESS

NAME OF WITNESS: .................Kari Kloc.....................

ADDRESS OF WITNESS: .......................................

.....500 W Madison St. Ste. 2800..................................

...Chicago, IL 60661....................................


OCCUPATION OF WITNESS: .......Paralegal...............................



WELLS FARGO BANK, NATIONAL ASSOCIATION,
individually as a Lender and as Administrative Agent


By: /s/ Katherine Cordes
Name: Katherine Cordes
Title: Relationship Manager

Bank of America, N.A.
individually as a Lender, as Syndication Agent, and as an Issuing Bank


By: /s/ Daniel J. Skerl
Name: Daniel J. Skerl
Title: Senior Vice President






    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

Name of Lender:
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.

 
By /s/ Thomas Danielson
Name: Thomas Danielson
Title: Authorized Signatory
 
For any Lender requiring a second signature line:
 
 
By _________________________________
 
Name:
 
Title:



Name of Lender:
Citizens Bank, N.A.

 
By /s/ Stephen A. Maenhout
Name: Stephen A. Maenhout
Title: Authorized Signatory
 
For any Lender requiring a second signature line:
 
 
By _________________________________
 
Name:
 
Title:




    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.


Name of Lender:
Compass Bank

 
By /s/ Charles Randolph
Name: Charles Randolph
Title: Senior Vice President



                            
Name of Lender:
PNC Bank, N.A.

By /s/ Kristin L. Lenda
Name: Kristin L. Lenda
Title: Managing Director
 
For any Lender requiring a second signature line:
 
By _________________________________
 
Name:
 
Title:



Name of Lender:
PNC BANK CANADA BRANCH

By /s/ Caroline Stade
Name: Caroline Stade
Title: Senior Vice President
 
For any Lender requiring a second signature line:
 
By _________________________________
 
Name:
 
Title:

    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

Name of Lender:

SUNTRUST BANK

By: /s/ Lisa Garling
Name: Lisa Garling
Title: Director


Name of Lender:

TD BANK, N.A.

By /s/ Shreya Shah

Name: Shreya Shah
Title: Senior Vice President

Name of Lender

BRANCH BANKING AND TRUST COMPANY    

By /s/ Brett Miller

Name: Brett Miller
Title: Senior Vice President

Name of Lender:
Fifth Third Bank, individually as a Lender


By: /s/ Robert R. Mangers
Name: Robert R. Mangers
Title: Vice President

Name of Lender:
U.S BANK NATIONAL ASSOCIATION


By: /s/ Mary Ann Klemm
Name: Mary Ann Klemm
Title: Senior Vice President






    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.




Name of Lender

Capital One, N.A

By /s/ Sean C. Horridge

Name: Sean C. Horridge
Title: Senior Vice President
For any Lender requiring a second signature line:
 
By _________________________________
 
Name:
 
Title:


Name of Lender:

HSBC Bank Plc                

By /s/ Simon Addis

Name: Simon Addis
Title: Head of International Subsidiary Banking

For any Lender requiring a second signature line:
 
By _________________________________
 
Name:
 
Title:

Name of Lender:

Royal Bank of Canada                

By /s/ Mohannad Hammad

Name: Mohannad Hammad
Title: Vice President, National Client Group - Finance


BANK OF THE WEST                

By /s/ Thomas P. Egan

Name: Thomas P. Egan
Title: Vice President

    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.


BNP Paribas:                

By /s/ Nader Tannous

Name: Nader Tannous
Title: Managing Director


By /s/ Emma Petersen

Name: Emma Petersen
Title: Vice President

Name of Lender:
GOLDMAN SACHS BANK USA

By /s/ Ushma Dedhiya
Name: Ushma Dedhiya
Title: Authorized Signatory
 
For any Lender requiring a second signature line:
 
By _________________________________
 
Name:
 
Title:

Name of Lender:

Barclays Bank PLC

By /s/ Graeme Palmer

Name: Graeme Palmer
Title: Assistant Vice President

Name of Lender:

Associated Bank, N.A.

By /s/ Keith M. Butala

Name: Keith M. Butala
Title: Assistant Vice President


    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

Name of Lender:
MB FINANCIAL BANK, N.A., individually as a Lender


By: /s/ Michelle M. Lynch
Name: Michelle M. Lynch
Title: Vice President


Name of Lender:

FIRST HAWAIIAN BANK

By /s/ Dawn Hofmann

Name: Dawn Hofmann
Title: Senior Vice President


Name of Lender:

The Huntington National Bank

By /s/ Phil Andresen

Name: Phil Andresen
Title: Assistant Vice President


    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

CONSENT AND REAFFIRMATION
Each of the undersigned hereby acknowledges receipt of a copy of the foregoing Amendment No. 1 to the Fourth Amended and Restated Credit Agreement dated as of March 25, 2011, amended and restated as of September 30, 2011, as further amended and restated as of May 3, 2013, as further amended and restated as of March 27, 2014, as further amended and restated as of January 29, 2016 (as amended, restated, supplemented or otherwise modified, the “ Credit Agreement ”) by and among LKQ Corporation (the “ Company ”), the Subsidiary Borrowers from time to time party thereto, the financial institutions from time to time party thereto (the “ Lenders ”) and Wells Fargo Bank, National Association, as Administrative Agent (the “ Administrative Agent ”), which Amendment No. 1 is dated as of December 14, 2016 (the “ Amendment ”). Capitalized terms used in this Consent and Reaffirmation and not defined herein shall have the meanings given to them in the Credit Agreement.
In connection with the execution and delivery of the Amendment, each of the undersigned Subsidiary Guarantors, as debtor, grantor, pledgor, guarantor, or in any other similar capacity in which such Subsidiary Guarantor grants liens or security interests in its properties or otherwise acts as an accommodation party or guarantor, as the case may be, in each case under the Loan Documents heretofore executed and delivered in connection with or pursuant to the Credit Agreement (as amended, supplemented or otherwise modified prior to the date of the Amendment, all such agreements being collectively referred to hereinafter as the “ Prior Agreements ”), (i) hereby consents to the Amendment and the transactions contemplated thereby, (ii) hereby ratifies and reaffirms all of its remaining payment and performance obligations, contingent or otherwise, if any, under each of such Loan Documents (as amended, restated, supplemented or otherwise modified by this Amendment, as the case may be) to which it is a party, (iii) to the extent such Subsidiary Guarantor granted liens on or security interests in any of its properties pursuant to any such Loan Documents, hereby ratifies and reaffirms such grant of security and confirms that such liens and security interests continue to secure the Secured Obligations, including, without limitation, all additional Obligations resulting from or incurred pursuant to the Amendment and the Credit Agreement as amended thereby and (iv) to the extent such Subsidiary Guarantor guaranteed or was an accommodation party with respect to the Secured Obligations or any portion thereof, hereby ratifies and reaffirms such guaranties or accommodation liabilities.
Dated: December 14, 2016







A&A AUTO PARTS STORES, INC.
ACCU-PARTS LLC
AKRON AIRPORT PROPERTIES, INC.
AMERICAN RECYCLING INTERNATIONAL, INC.
A-RELIABLE AUTO PARTS & WRECKERS, INC.
ARROW SPEED ACQUISITION LLC
BUDGET AUTO PARTS U-PULL-IT, INC.
CITY AUTO PARTS OF DURHAM, INC.
DRIVERFX.COM, INC.
GREENLEAF AUTO RECYCLERS, LLC
KAIR IL, LLC
KAO LOGISTICS, INC.
KAO WAREHOUSE, INC.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
KEYSTONE AUTOMOTIVE OPERATIONS, INC.
KEYSTONE AUTOMOTIVE OPERATIONS OF CANADA, INC.
LKQ 1ST CHOICE AUTO PARTS, LLC
LKQ 250 AUTO, INC.
LKQ A&R AUTO PARTS, INC.
LKQ ALL MODELS CORP.
LKQ APEX AUTO PARTS, INC.
LKQ ATLANTA, L.P.
LKQ AUTO PARTS OF CENTRAL CALIFORNIA, INC.
LKQ AUTO PARTS OF MEMPHIS, INC.
LKQ AUTO PARTS OF NORTH TEXAS, INC.
LKQ AUTO PARTS OF NORTH TEXAS, L.P.
LKQ AUTO PARTS OF UTAH, LLC
LKQ BEST AUTOMOTIVE CORP.
each as a Subsidiary Guarantor

By: /s/ Dominick Zarcone                         

Name: Dominick Zarcone
Title: Vice President and Chief Financial Officer


LKQ BROADWAY AUTO PARTS, INC.
LKQ FINANCE 1 LLC
LKQ FINANCE 2 LLC
LKQ FOSTER AUTO PARTS SALEM, INC.
LKQ FOSTER AUTO PARTS WESTSIDE LLC
LKQ FOSTER AUTO PARTS, INC.
LKQ GORHAM AUTO PARTS CORP.
LKQ GREAT LAKES CORP.
LKQ HEAVY TRUCK-TEXAS BEST DIESEL, L.P.
LKQ HUNTS POINT AUTO PARTS CORP.
LKQ LAKENOR AUTO & TRUCK SALVAGE, INC.
LKQ MANAGEMENT COMPANY
LKQ METRO, INC.
LKQ MID-AMERICA AUTO PARTS, INC.

    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

LKQ MIDWEST AUTO PARTS CORP.
LKQ MINNESOTA, INC.
LKQ OF INDIANA, INC.
LKQ OF MICHIGAN, INC.
LKQ OF NEVADA, INC.
LKQ OF TENNESSEE, INC.
LKQ ONLINE CORP.
LKQ PENN-MAR, INC.
LKQ PICK YOUR PART SOUTHEAST, LLC,
each as a Subsidiary Guarantor

By: /s/ Dominick Zarcone                         
Name: Dominick Zarcone
Title: Vice President and Chief Financial Officer

LKQ RALEIGH AUTO PARTS CORP.
LKQ ROUTE 16 USED AUTO PARTS, INC.
LKQ SALISBURY, INC.
LKQ SAVANNAH, INC.
LKQ SELF SERVICE AUTO PARTS-HOLLAND, INC.
LKQ SELF SERVICE AUTO PARTS-KALAMAZOO, INC.
LKQ SELF SERVICE AUTO PARTS-MEMPHIS LLC
LKQ SELF SERVICE AUTO PARTS TULSA, INC.
LKQ SMART PARTS, INC.
LKQ SOUTHEAST, INC.
LKQ SOUTHWICK LLC
LKQ TAIWAN HOLDING COMPANY
LKQ TIRE & RECYCLING, INC.
LKQ TRADING COMPANY
LKQ TRIPLETT ASAP, INC.
LKQ U-PULL-IT AUTO DAMASCUS, INC.
LKQ U-PULL-IT TIGARD, INC.
LKQ WEST MICHIGAN AUTO PARTS, INC.
NORTH AMERICAN ATK CORPORATION
PICK-YOUR-PART AUTO WRECKING
POTOMAC GERMAN AUTO, INC.
PULL-N-SAVE AUTO PARTS, LLC
REDDING AUTO CENTER, INC.
SCRAP PROCESSORS, LLC
SUPREME AUTO PARTS, INC.
U-PULL-IT, INC.
U-PULL-IT, NORTH, LLC,
each as a Subsidiary Guarantor

By: /s/ Dominick Zarcone                         

Name: Dominick Zarcone
Title: Vice President and Chief Financial Officer

LKQ BRAD’S AUTO & TRUCK PARTS, INC.
LKQ FOSTER AUTO PARTS, INC.,

    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.

each as a Subsidiary Guarantor

By: /s/ Todd Hanson

Name: Todd Hanson
Title: President


KPGW CANADIAN HOLDCO, LLC
KPGW EUROPEAN HOLDCO, LLC
LKQ GLASS 1, LLC
LKQ GLASS 2 INC.
LKQ PGW HOLDINGS, LLC
PGW AUTO GLASS LLC
PGW HOLDINGS, LLC
PITTSBURGH GLASS WORKS, LLC,
each as a Subsidiary Guarantor

By: /s/ Dominick Zarcone                         

Name: Dominick Zarcone
Title: Executive Vice President





    Signature Page to Amendment No. 1 to
Fourth Amended and Restated Credit Agreement
LKQ Corporation, et al.


SCHEDULE 2.01
COMMITMENTS
LENDER
DOLLAR TRANCHE
COMMITMENT
MULTICURRENCY TRANCHE COMMITMENT
ADDITIONAL TERM LOAN
COMMITMENT
(DOLLARS)
OUTSTANDING INCREMENTAL US TERM LOANS  As of the Amendment No. 1 Effective Date.
OUTSTANDING INITIAL TERM LOANS
 
 
 
 
 
 
WELLS FARGO BANK, NATIONAL ASSOCIATION
---
$227,683,776
$3,880,118
$21,318,238
$46,556,205
BANK OF AMERICA, N.A.
---
$227,683,776
$3,880,118
$21,318,238
$46,556,205
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
---
$214,322,805
$3,880,118
$21,318,238
$34,917,178
CITIZENS BANK, N.A.
---
$156,241,209
$2,838,029
$15,592,767
$34,917,178
COMPASS BANK
---
$161,702,637
$3,015,406
$16,567,315
$23,278,149
PNC BANK, NATIONAL ASSOCIATION
---
$161,702,637
$3,015,406
$16,567,315
$23,278,149
SUNTRUST BANK
---
$164,030,516
$3,015,406
$16,567,315
$20,950,270
TD BANK, N.A.
---
$164,849,551
$3,015,406
$16,567,315
$15,131,235
BRANCH BANKING AND TRUST COMPANY
---
$126,117,655
$2,350,243
$12,912,760
$16,295,128
FIFTH THIRD BANK
---
$116,806,847
$2,350,243
$12,912,760
$25,605,936
U.S. BANK NATIONAL ASSOCIATION
---
$119,134,634
$2,350,243
$12,912,760
$23,278,149
CAPITAL ONE, N.A.
---
$129,058,399
$3,062,597
$17,420,044
---
HSBC BANK USA, N.A.
---
$103,951,695
$1,938,475
$10,650,417
$14,964,524
HSBC BANK PLC
---
$57,750,942
$1,076,931
$5,916,897
$8,313,625
ROYAL BANK OF CANADA
---
$83,976,391
$1,640,735
$9,014,568
$15,130,801
BANK OF THE WEST
---
$53,750,000
$2,591,289
$13,643,671
$4,655,575
BNP PARIBAS
---
$60,000,000
---
---
---
GOLDMAN SACHS BANK USA
---
$37,500,000
---
---
---
BARCLAYS BANK PLC
---
$37,500,000
---
---
---
ASSOCIATED BANK, NATIONAL ASSOCIATION
---
$23,564,317
$443,442
$2,436,370
$3,491,681
MB FINANCIAL, N.A., AS SUCCESSOR IN INTEREST TO COLE TAYLOR BANK
---
$22,672,213
---
---
$2,327,788
FIRST HAWAIIAN BANK
---
---
$21,663,672
---
$3,336,328
THE HUNTINGTON NATIONAL BANK
---
---
$11,884,453
---
$8,115,547
FIRST MIDWEST BANK
---
---
$12,101,172
---
$7,898,828
MEGA INTERNATIONAL COMMERCIAL BANK CO., LTD., NEW YORK BRANCH
---
---
$12,672,213
---
$2,327,788
E.SUN COMMERCIAL BANK, LTD., LOS ANGELES BRANCH
---
---
$7,499,999
---
$2,224,219
TAIWAN COOPERATIVE BANK LTD SEATTLE BRANCH
---
---
---
---
$6,227,800
 
 
 
 
 
 
AGGREGATE COMMITMENT
$0.00
$2,450,000,000
$110,165,714
$243,636,988
$389,778,286

                                                                                                  
1 As of the Amendment No. 1 Effective Date.


Exhibit 4.11


SUPPLEMENTAL INDENTURE (this “ Supplemental Indenture ”), dated as of September 9, 2016, among the parties identified in the signature page of this Supplemental Indenture as a Guaranteeing Subsidiary (each a " Guaranteeing Subsidiary ") each of which is a direct or indirect subsidiary of LKQ Corporation (or its permitted successor), a Delaware corporation (the “ Issuer ”), the Issuer, the other Guarantors (as defined in the Indenture referred to herein) and U.S. Bank National Association, as trustee under the Indenture referred to below (the “ Trustee ”).
W I T N E S S E T H
WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an indenture, dated as of May 9, 2013 (the “ Indenture ”), providing for the issuance of the Issuer’s 4.75% Senior Notes due 2023 (the “ Notes ”);
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “ Note Guarantee ”); and
WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1.    CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2.    AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.
4.    NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator, member of the Board of Directors or holder of Capital Stock of the Issuer or of any Guarantor, as such, shall have any liability for any obligations of the Issuer or the Guarantors under the Notes, this Supplemental Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.
5.    THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
6.    COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
7.    EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


8.    THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary and the Issuer.

[Signature Pages Follow]


SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

Dated: September 9, 2016
GUARANTEEING SUBSIDIARIES:

LKQ Glass 2 Inc.
PGW Holdings, LLC
Pittsburgh Glass Works, LLC
PGW Auto Glass, LLC
KPGW Canadian Holdco, LLC
KPGW European Holdco, LLC



By:
    /s/ Dominick Zarcone
Name:    Dominick Zarcone
Title:    Executive Vice President

LKQ CORPORATION


By:
    /s/ Dominick Zarcone
Name:    Dominick Zarcone
Title:    Executive Vice President and
Chief Financial Officer

SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


GUARANTORS:
A&A AUTO PARTS STORES, INC.
ACCU-PARTS LLC
AKRON AIRPORT PROPERTIES, INC.
AMERICAN RECYCLING INTERNATIONAL, INC.
A - RELIABLE AUTO PARTS & WRECKERS, INC.
ARROW SPEED ACQUISITION, LLC
BUDGET AUTO PARTS U-PULL-IT, INC.
CITY AUTO PARTS OF DURHAM, INC.
DRIVERFX.COM, INC.
GREENLEAF AUTO RECYCLERS, LLC
KAIR IL, LLC
KAO LOGISTICS, INC.
KAO WAREHOUSE, INC.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
KEYSTONE AUTOMOTIVE OPERATIONS, INC.
KEYSTONE AUTOMOTIVE OPERATIONS OF CANADA, INC.
LAKEFRONT CAPITAL HOLDINGS, INC.,
each as a Guarantor


By:
    /s/ Dominick Zarcone
Name:    Dominick Zarcone
Title:    Vice President and
Chief Financial Officer

SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


LKQ 1ST CHOICE AUTO PARTS, LLC
LKQ 250 AUTO, INC.
LKQ A&R AUTO PARTS, INC.
LKQ ALL MODELS CORP.
LKQ APEX AUTO PARTS, INC.
LKQ ATLANTA, L.P.
LKQ AUTO PARTS OF CENTRAL CALIFORNIA, INC.
LKQ AUTO PARTS OF MEMPHIS, INC.
LKQ AUTO PARTS OF NORTH TEXAS, INC.
LKQ AUTO PARTS OF NORTH TEXAS, L.P.
LKQ AUTO PARTS OF UTAH, LLC
LKQ BEST AUTOMOTIVE CORP.
LKQ BIRMINGHAM, INC.
LKQ BROADWAY AUTO PARTS, INC.
LKQ FINANCE 1 LLC
LKQ FINANCE 2 LLC
LKQ FOSTER AUTO PARTS SALEM, INC.
LKQ FOSTER AUTO PARTS WESTSIDE LLC
LKQ GLASS 1, LLC
LKQ GORHAM AUTO PARTS CORP.
LKQ GREAT LAKES CORP.
LKQ HEAVY TRUCK-TEXAS BEST DIESEL, L.P.
LKQ HUNTS POINT AUTO PARTS CORP.
LKQ LAKENOR AUTO & TRUCK SALVAGE, INC.
LKQ MANAGEMENT COMPANY
LKQ METRO, INC.
LKQ MID-AMERICA AUTO PARTS, INC.
LKQ MIDWEST AUTO PARTS CORP.
LKQ MINNESOTA, INC.
LKQ OF INDIANA, INC.
LKQ OF MICHIGAN, INC.
LKQ OF NEVADA, INC.
LKQ OF TENNESSEE, INC.
LKQ ONLINE CORP.
LKQ PENN-MAR, INC.
LKQ PGW HOLDINGS, LLC
LKQ PICK YOUR PART SOUTHEAST, LLC
LKQ PLUNKS TRUCK PARTS & EQUIPMENT - JACKSON INC.,
each as a Guarantor

By:
    /s/ Dominick Zarcone     
Name:    Dominick Zarcone
Title:    Vice President and
Chief Financial Officer

SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


LKQ RALEIGH AUTO PARTS CORP.
LKQ ROUTE 16 USED AUTO PARTS, INC.
LKQ SALISBURY, INC.
LKQ SAVANNAH, INC.
LKQ SELF SERVICE AUTO PARTS-HOLLAND, INC.
LKQ SELF SERVICE AUTO PARTS-KALAMAZOO, INC.
LKQ SELF SERVICE AUTO PARTS-MEMPHIS LLC
LKQ SELF SERVICE AUTO PARTS-TULSA, INC.
LKQ SMART PARTS, INC.
LKQ SOUTHEAST, INC.
LKQ SOUTHWICK LLC
LKQ TAIWAN HOLDING COMPANY
LKQ TIRE & RECYCLING, INC.
LKQ TRADING COMPANY
LKQ TRIPLETTASAP, INC.
LKQ U-PULL-IT AUTO DAMASCUS, INC.
LKQ U-PULL-IT TIGARD, INC.
LKQ WEST MICHIGAN AUTO PARTS, INC.
NORTH AMERICAN ATK CORPORATION
PICK-YOUR-PART AUTO WRECKING
POTOMAC GERMAN AUTO, INC.
PULL-N-SAVE AUTO PARTS, LLC
REDDING AUTO CENTER, INC.
SCRAP PROCESSORS, LLC
SUPREME AUTO PARTS, INC.
U-PULL-IT, INC.
U-PULL-IT, NORTH, LLC,
each as a Guarantor

By:
    /s/ Dominick Zarcone
Name:    Dominick Zarcone
Title:    Vice President and
Chief Financial Officer

SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


LKQ BRAD’S AUTO & TRUCK PARTS, INC.
LKQ FOSTER AUTO PARTS, INC. ,
each as a Guarantor

By:
/s/ Todd Hanson
Name: Todd Hanson
Title: President



SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]


U.S. BANK NATIONAL ASSOCIATION,
as Trustee



By:
/s/ Linda E. Garcia     
Name: Linda E. Garcia    
Title:    Vice President



SMRH:225644653.2             [ Signature Page to Supplemental Indenture ]

Exhibit 10.8


RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (this “ Agreement ”) is made and entered into as of the 13th day of January 2017 (the “ Grant Date ”) by and between LKQ Corporation, a Delaware corporation (the “ Company ”), and [[FIRSTNAME]] [[LASTNAME]] (the “ Key Person ”).
Recitals
The Board is of the opinion that the interests of the Company will be advanced by encouraging certain persons affiliated with the Company, upon whose judgment, initiative and efforts the Company is largely dependent for the successful conduct of the Company’s business, to acquire or increase their proprietary interest in the Company, thus providing them with a more direct stake in its welfare and assuring a closer identification of their interests with those of the Company.
The Board is of the opinion that the Key Person is such a person.
The Company desires to grant RSUs to the Key Person, and the Key Person desires to accept such grant, all on the terms and subject to the conditions set forth in this Agreement and set forth in the Company’s 1998 Equity Incentive Plan (the “ Plan ”). Any capitalized term used herein that is not defined shall have the meaning of such term set forth in the Plan.
Covenants
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Grant of Restricted Stock Units.   The Company hereby grants to the Key Person and the Key Person hereby accepts from the Company [[SHARESGRANTED]]  RSUs, on the terms and subject to the conditions set forth herein and in the Plan (the “ Award ”).

2. Representation of Key Person.   The Key Person hereby represents and warrants that the Key Person has been provided a copy of the Plan (which is also filed publicly) and a Plan prospectus describing the material terms of the Plan, and is accepting the RSUs with full knowledge of and subject to the restrictions contained in this Agreement and the Plan.

3. Vesting and Settlement.   (a) The RSUs are subject to time-based vesting conditions (which must be satisfied before the applicable portion of the Award is considered earned and payable) as follows: the Award shall vest with respect to 10% of the number of RSUs subject to the Award (rounded to the nearest whole share) on July 14, 2017 and on each six-month anniversary of July 14, 2017 (unless such date is a day on which the U.S. stock exchanges are closed, in which case the vesting date shall be extended to the next succeeding business day), subject to the Key Person’s continued Service through the applicable vesting date (the “ Vesting Period ”).

(b)      Within 30 days of vesting, one Share shall be delivered to the Key Person in settlement of each vested RSU.
4. Termination of Relationship.   In the event the Key Person incurs a Separation from Service for any reason other than death or Disability, all RSUs of such Key Person that are unvested at the date of Separation from Service shall be forfeited to the Company. In the event the Key Person incurs a Separation



from Service due to death or Disability, all RSUs of such Key Person shall immediately become fully vested on the date of termination and all restrictions shall lapse.

5. Change of Control.   In the event of a Change of Control occurring after the Grant Date, the Change of Control provisions of Article 14 of the Plan shall apply to the RSUs.

6. Non-Transferability of RSUs.   Except as expressly provided in the Plan or this Agreement, the RSUs may not be sold, assigned, transferred, pledged or otherwise disposed of, shall not be assignable by operation of law and shall not be subject to execution, attachment or similar process, except by will or the laws of descent and distribution. Any attempted sale, assignment, transfer, pledge or other disposition of any RSU prior to vesting shall be null and void and without effect.

7. Taxes.   The Key Person shall be responsible for taxes due upon the settlement of any RSU granted hereunder and upon any later transfer by the Key Person of any Share received upon the settlement of an RSU.

8. Payroll Authorization.   In the event that the Key Person does not make an arrangement acceptable to the Company to pay to the Company the tax withholding obligation due upon vesting or settlement of an RSU or in the event that the Key Person does not pay the entire tax withholding obligation due upon vesting or settlement of an RSU, the Key Person authorizes the Company to collect the amount due through a payroll withholding or to direct a broker to sell a sufficient number of the Key Person’s Shares to satisfy such obligation (and any related brokerage fees) and to remit to the Company from the proceeds of sale the amount due. In the event that the Key Person pays more than the tax withholding obligation due upon vesting or settlement of an RSU, the Key Person authorizes the Company to return the excess payment through the Key Person’s payroll.

9. No Rights as a Stockholder.   Prior to the settlement of any RSU, the Key Person has no rights with respect to the Share issuable to the Key Person upon such settlement, shall not be treated as a Stockholder and shall not have any voting rights or the right to receive any dividends with respect to the RSU or the underlying Share.

10. Notices.   Any notices required or permitted hereunder shall be sent using any means (including personal delivery, courier, messenger service, facsimile transmission or electronic transmission), if to the Key Person, at the address set forth below or such other address as the Key Person may designate in writing to the Company or to the Key Person’s home address if no other address has been provided to the Company; and, if to the Company, at the address of its headquarters in Chicago, Attention: General Counsel, or such other address as the Company may designate in writing to the Key Person. Such notice shall be deemed duly given when it is actually received by the party for whom it was intended.

11. Failure to Enforce Not a Waiver.   The failure of the Company to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

12. Amendment or Termination.   This Agreement may not be amended or terminated unless such amendment or termination is in writing and duly executed by each of the parties hereto.

13. Benefit and Binding Effect.   This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Key Person and the Key Person’s executors, administrators, personal representatives and heirs. In the event that any part of this Agreement shall be held


to be invalid or unenforceable, the remaining parts hereof shall nevertheless continue to be valid and enforceable as though the invalid portions were not a part hereof.

14. Entire Agreement.   This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, discussions and understandings relating to such subject matter; provided, however, for the avoidance of doubt, the parties acknowledge that any confidentiality, non-competition, non-solicitation or similar restrictive covenant agreed to by the parties hereto on or before the Grant Date is not superseded by this Agreement and is an obligation of the parties hereto in addition to Section 17 below.

15. Governing Law and Venue.   This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to principles and provisions thereof relating to conflict or choice of laws. Any and all actions concerning any dispute arising hereunder shall be filed and maintained only in a state or federal court sitting in the County of Cook, State of Illinois. The parties hereto specifically consent and submit to the jurisdiction of such court.

16. Incorporation of Terms of Plan.   The terms of the Plan are incorporated herein by reference and the Key Person’s rights hereunder are subject to the terms of the Plan to the extent they are inconsistent with or in addition to the terms set forth herein. The Key Person hereby agrees to comply with all requirements of the Plan.

17. Non-Competition and Confidentiality.   (a) Notwithstanding any provision to the contrary set forth elsewhere herein, the RSUs, the Shares underlying the RSUs, and any proceeds received by the Key Person upon the sale of Shares underlying the RSUs shall be forfeited by the Key Person to the Company without any consideration therefore, if the Key Person is not in compliance, at any time during the period commencing on the Grant Date and ending nine months following the Key Person’s Separation from Service, with all applicable provisions of the Plan and with the following conditions:

(i)      the Key Person shall not directly or indirectly (1) be employed by, engage or have any interest in any business which is or becomes competitive with the Company or its Subsidiaries or is or becomes otherwise prejudicial to or in conflict with the interests of the Company or its Subsidiaries, (2) induce any customer of the Company or its Subsidiaries to patronize such competitive business or otherwise request or advise any such customer to withdraw, curtail or cancel any of its business with the Company or its Subsidiaries, or (3) hire or solicit for employment any person employed by the Company or its Subsidiaries or hire any person who was employed by the Company or its Subsidiaries at any time within nine months of such hire; provided, however, that this restriction shall not prevent the Key Person from acquiring and holding up to two percent of the outstanding shares of capital stock of any corporation which is or becomes competitive with the Company or is or becomes otherwise prejudicial to or in conflict with the interests of the Company if such shares are available to the general public on a national securities exchange or in the over-the-counter market; and
(ii)      the Key Person shall not use or disclose, except for the sole benefit of or with the written consent of the Company, any confidential information relating to the business, processes or products of the Company. Nothing in this Agreement, however, prohibits the Key Employee from reporting violations of law or regulation to any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “ Governmental Entity ”), or from cooperating with any Governmental Entity, including the EEOC, the Securities and Exchange Commission or the Department of Justice.


(b)      The Company shall notify in writing the Key Person of any violation by the Key Person of this Section 17 . The forfeiture shall be effective as of the date of the occurrence of any of the activities set forth in Section 17(a) above. If the Shares underlying the RSUs have been sold, the Key Person shall promptly pay to the Company the amount of the proceeds from such sale. The Key Person hereby consents to a deduction from any amounts owed by the Company to the Key Person from time to time (including amounts owed as wages or other compensation, fringe benefits or vacation pay) to the extent of the amounts owed by the Key Person to the Company under this Section 17 . Whether or not the Company elects to make any set-off in whole or in part, the Key Person agrees to timely pay any amounts due under this Section 17 . In addition, the Company shall be entitled to injunctive relief for any violation by the Key Person of this Section 17 .
(c)      Notwithstanding any provision of this Agreement to the contrary, the Key Person shall be entitled to communicate, cooperate and file a complaint with any Governmental Entity concerning possible violations of any U.S. federal, state or local law or regulation, and to otherwise make disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, as long as in each case the communications and disclosures are consistent with applicable law. The Key Person shall not forfeit any RSUs, Shares held in connection with any RSUs or proceeds from the sale of such Shares as a result of exercising any rights under this Section 17(c) .
18. Hedging Positions.   The Key Person agrees that, at any time during the period commencing on the Grant Date and ending when the Award is fully settled or the RSUs are forfeited, the Key Person shall not (a) directly or indirectly sell any equity security of the Company if the Key Person does not own the security sold, or if owning the security, does not deliver it against such sale within 20 days thereafter; or (b) establish a derivative security position with respect to any equity security of the Company that increases in value as the value of the underlying equity decreases (including a long put option and a short call option position) with securities underlying the position exceeding the underlying securities otherwise owned by the Key Person. In the event the Key Person violates this provision, the Company shall have the right to cancel the Award.

19. Code Section 409A.   The RSUs are intended to be exempt from (or in the alternative to comply with) Code Section 409A. This Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A, consistent with Section 18.6 of the Plan.

20. Clawback.   The Award and all amounts and benefits received or outstanding under the Plan shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction or other similar action in accordance with the terms and conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time. The Key Person’s acceptance of the Award constitutes the Key Person’s acknowledgement of and consent to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Key Person, whether adopted before or after the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback or reduction of compensation, and the Key Person’s agreement that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Grant Date.




LKQ CORPORATION
By:      /s/ Dominick Zarcone             
Name: Dominick Zarcone             
Title: Executive Vice President         
KEY PERSON
By:                         
Name:                           
Address:
                    
                        
                        


Exhibit 10.34




CONFIDENTIAL
Change of Control Agreement
June 1, 2016

Matthew J. McKay
500 W. Madison Street, Suite 2800
Chicago, IL 60661

Dear Mr. McKay:
LKQ Corporation, a Delaware corporation (the “ Company ”), considers it essential to the best interests of its stockholders to take reasonable steps to retain key management personnel. Further, the Board of Directors of the Company (the “ Board ”) recognizes that the uncertainty and questions that might arise among management in the context of any possible Change of Control (as defined below) of the Company could result in the departure or distraction of management personnel to the detriment of the Company and its stockholders.
In order to reinforce and encourage your continued attention and dedication to your assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible Change of Control, the Company has determined to enter into this letter agreement (the “ Agreement ”), which addresses the terms and conditions of your separation from the Company in connection with a Change of Control or within two (2) years following the Change of Control Date (the “ Change of Control Period ”). Capitalized words that are not otherwise defined herein shall have the meanings assigned to those words in Section 11 hereof.
The Agreement provides severance benefits to you under certain circumstances since you are in a select group of management or highly compensated employees of the Company. This Agreement is designed to be an “employee welfare benefit plan,” as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Exhibit A is a part of this Agreement and provides important information regarding this Agreement.
1.
Operation of Agreement . The provisions of this Agreement pertaining to the terms and conditions of your separation from the Company in connection with a Change of Control (collectively, the “ Severance Provisions ”) shall apply only if a Change of Control occurs during the Effective Period. If a Change of Control occurs during the Effective Period, the Severance Provisions become effective on the date of the Change of Control (the “ Change of Control Date ”). Notwithstanding the foregoing, if (a) a Change of Control occurs during the Effective Period; and (b) your employment with the Company is terminated (other than your voluntary resignation without Good Reason or due to your death or Disability) during the Effective Period, but within twelve (12) months prior to the date on which the Change of Control occurs; and (c) it is reasonably demonstrated by you that such termination of employment (i) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then the “ Change of Control Date ” shall instead mean the date immediately prior to the date of such termination of



employment. In connection with the foregoing, your unvested equity-based compensation awards that are outstanding as of your termination shall remain outstanding to the extent necessary (but subject in all cases to their maximum term) to enable their potential future vesting and exercisability should a Change of Control occur within twelve months after your termination without Cause by the Company. This Agreement will remain in effect until the later of (x) the last day of the Effective Period; or (y) if a Change of Control occurs during the Effective Period, the date on which all benefits due to you under this Agreement, if any, have been paid. However, this Agreement will expire earlier (i) upon the date that your employment is terminated by the Company for Cause or by you without Good Reason or (ii) upon the first anniversary of the termination of your employment by the Company without Cause if no Change of Control has occurred before such first anniversary.
2.
Termination of Employment by Reason of Death or Disability . Your employment shall terminate automatically if you die during the Change of Control Period. If the Company determines in good faith that you incurred a Disability during the Change of Control Period, it may give you written notice, in accordance with Section 5 hereof, of its intention to terminate your employment. In such event, your employment with the Company shall terminate effective on the thirtieth (30) calendar day after your receipt of such notice if you have not returned to full-time duties within thirty (30) calendar days after such receipt. If your employment is terminated for death or Disability during the Change of Control Period, this Agreement shall terminate without further obligations on the part of the Company other than the obligation to pay to you or your representative, as applicable, the following amounts:
a.
the Accrued Obligations, which shall be paid to you in a single lump sum cash payment within fifteen (15) calendar days of the Date of Termination;
b.
the Pro Rata Bonus, which shall be paid to you in a single lump sum cash payment no later than the later of (i) fifteen (15) calendar days following the Date of Termination or (ii) the effective date of the Waiver and Release; and
c.
the Other Benefits, which shall be paid in accordance with the terms and conditions of such plans, programs, policies, arrangements or agreements.
3.
Termination for Cause; Resignation Other Than for Good Reason . If your employment is terminated for Cause or you resign for other than Good Reason during the Change of Control Period, your employment will terminate on the Date of Termination in accordance with Section 5 hereof and this Agreement shall terminate without further obligations on the part of the Company other than the obligation to pay to you the following:
a.
the Accrued Obligations, which shall be paid to you in a single lump sum cash payment within fifteen (15) calendar days of the Date of Termination; and
b.
the Other Benefits, which shall be paid in accordance with the terms and conditions of such plans, programs or policies.
4.
Termination as a Result of an Involuntary Termination . In the event that your employment with the Company should terminate during the Change of Control Period as a result of an Involuntary Termination, the Company will be obligated, except as provided in Section 8 or Section 9 hereof, to provide you the following benefits:
a.
Severance Payment . The Company shall pay to you the following amounts:
i.
the Accrued Obligations, which shall be paid to you in a single lump sum cash payment within fifteen (15) calendar days of the Date of Termination;
ii.
the Pro Rata Bonus, which shall be paid to you in a single lump sum cash payment no later than the later of (A) fifteen (15) calendar days following the Date of Termination or (B) the effective date of the Waiver and Release;
iii.
an amount equal to the product of (A) 2.0 times (B) the sum of (1) your Adjusted Base Salary plus (2) the greater of (x) your Target Bonus or (y) the average of the



annual bonuses paid or to be paid to you with respect to the immediately preceding three (3) fiscal years, which amount shall be paid to you in a single lump sum cash payment no later than the later of (i) fifteen (15) calendar days following the Date of Termination or (ii) the effective date of the Waiver and Release;
iv.
if you had previously consented to the Company’s request to relocate your principal place of employment more than forty (40) miles from its location immediately prior to the Change of Control, all unreimbursed relocation expenses incurred by you in accordance with the Company’s relocation policies, which expenses shall be paid to you in a single lump sum cash payment no later than the later of (A) fifteen (15) calendar days following the Date of Termination or (B) the effective date of the Waiver and Release; and
v.
the Other Benefits, which shall be paid in accordance with the then-existing terms and conditions of such plans, programs or policies.
b.
Benefit Continuation . You and your then eligible dependents shall continue to be covered by and participate in the group health and dental care plans (collectively, “ Health Plans ”) of the Company (at the Company’s cost) in which you participated, or were eligible to participate, immediately prior to the Date of Termination through the end of the Benefit Continuation Period; provided , however , that any medical or dental welfare benefit otherwise receivable by you hereunder shall be reduced to the extent that you become covered under a group health or dental care plan providing comparable medical and health benefits. You shall be eligible to participate in such Health Plans on terms that are at least as favorable as those in effect immediately prior to the Date of Termination. However, in the event that the terms of the Company’s Health Plans do not permit you to participate in those plans (other than pursuant to an election under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“ COBRA ”)), in lieu of your and your eligible dependent’s coverage and participation under the Company’s Health Plans, the Company shall pay to you within fifteen (15) calendar days after the effective date of the Waiver and Release a lump sum equal to two (2) times your monthly COBRA premium amount for the number of months remaining in the Benefit Continuation Period. In addition, for the purposes of coverage under COBRA, your COBRA event date will be the date of loss of coverage described in this paragraph above.
c.
Outplacement Services . The Company shall, at its sole expense as incurred, provide you with outplacement services on such terms and conditions as may be reasonably determined by the Company prior to the Change of Control.
d.
Acceleration of Stock Awards . All your outstanding awards of restricted stock, stock options, and other equity-based compensation shall become fully vested and exercisable in full immediately upon the effective date of the Waiver and Release; provided, however, that any such awards that would be out of the money as of the Date of Termination may be terminated pursuant to Section 9(b) hereof. In addition, all of your outstanding awards of restricted stock, stock options, and other equity-based compensation that are not assumed or substituted with awards of equivalent value in connection with a Change of Control shall become fully vested and exercisable in full immediately upon the Change of Control.
5.
Date and Notice of Termination . Any termination of your employment by the Company or by you during the Change of Control Period shall be communicated by a notice of termination to the other party hereto (the “ Notice of Termination ”). The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. The date of your termination of employment with the Company (the “ Date of Termination ”) shall be determined as follows: (i) if your employment is terminated for



Disability, thirty (30) calendar days after a Notice of Termination is received by you (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) calendar day period), (ii) if your employment is terminated by the Company in an Involuntary Termination, the later of the date specified in the Notice of Termination or five (5) calendar days after the date the Notice of Termination is received by you, (iii) if you terminate your employment for Good Reason, five (5) calendar days after the date the Notice of Termination is received by the Company, and (iv) if your employment is terminated by the Company for Cause, the later of the date specified in the Notice of Termination or five (5) calendar days following the date such notice is received by you. The Date of Termination for a resignation of employment other than for Good Reason shall be the date set forth in the applicable notice.
6.
No Mitigation or Offset; D&O Insurance .
a.
No Mitigation or Offset . You shall not be required to mitigate the amount of any payment provided for herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by you as the result of employment by another employer.
b.
D&O Insurance, and Indemnification . Through at least the sixth anniversary of the Date of Termination, the Company shall maintain coverage for you as a named insured on all directors’ and officers’ insurance maintained by the Company for the benefit of its directors and officers on at least the same basis as all other covered individuals and provide you with at least the same corporate indemnification as it provides to other senior executives.
7.
Confidentiality . You agree to treat all Confidential Information as confidential information entrusted to you solely for use as an employee of the Company, and shall not divulge, reveal or transmit any Confidential Information in any way to persons not employed by the Company at any time from the date hereof until the end of time, whether or not you continue to be an employee of the Company, unless authorized in writing by the Company.
8.
Code Section 409A . The Agreement is not intended to constitute a "nonqualified deferred compensation plan" within the meaning of Code Section 409A. Notwithstanding the foregoing, in the event this Agreement or any benefit paid under this Agreement to you is deemed to be subject to Code Section 409A, you consent to the Company's adoption of such conforming amendments as the Company deems advisable or necessary, in its sole discretion (but without an obligation to do so), to comply with Code Section 409A and avoid the imposition of taxes under Code Section 409A. This Agreement will be interpreted and construed to not violate Code Section 409A, although nothing herein will be construed as an entitlement to or guarantee of any particular tax treatment to you.
For purposes of this Agreement, a termination of employment means a "separation from service" as defined in Code Section 409A. Each payment made pursuant to any provision of this Agreement shall be considered a separate payment and not one of a series of payments for purposes of Code Section 409A. While it is intended that all payments and benefits provided under this Agreement to you will be exempt from or comply with Code Section 409A, the Company makes no representation or covenant to ensure that the payments under this Agreement are exempt from or compliant with Code Section 409A. The Company will have no liability to you or any other person or entity if a payment or benefit under this Agreement is challenged by any taxing authority or is ultimately determined not to be exempt or compliant. You further understand and agree that you will be entirely responsible for any and all taxes on any benefits payable to you as a result of this Agreement. As a condition of participation in the Agreement, you understand and agree that you will never assert any claims against the Company for reimbursement or payment of any Code Section 409A additional taxes, penalties and/or interest.



If upon your "separation from service" within the meaning of Code Section 409A, you are then a "specified employee" (as defined in Code Section 409A), then solely to the extent necessary to comply with Code Section 409A and avoid the imposition of taxes under Code Section 409A, the Company shall defer payment of "nonqualified deferred compensation" subject to Code Section 409A payable as a result of and within six (6) months following such "separation from service" under this Agreement until the earlier of (i) the first business day of the seventh month following your "separation from service," or (ii) ten (10) days after the Company receives written confirmation of your death. Any such delayed payments shall be made without interest. For avoidance of doubt, any payment whose amount is derived from the value of a Company common share shall be calculated using the value of a common share as of the closing on the expiration date of the foregoing Code Section 409A delay period.
To the extent any nonqualified deferred compensation payment to you could be paid in one or more of your taxable years depending upon you completing certain employment-related actions, then any such payments will commence or occur in the later taxable year to the extent required by Code Section 409A.
No reimbursement payable to you pursuant to any provisions of this Agreement or pursuant to any plan or arrangement of the Company shall be paid later than the last day of the calendar year following the calendar year in which the related expense was incurred, and no such reimbursement during any calendar year shall affect the amounts eligible for reimbursement in any other calendar year, except, in each case, to the extent that it does not violate Code Section 409A.
Any reimbursement payable to you under this Agreement or pursuant to any plan or arrangement of the Company shall be paid in accordance with the Company's established procedures provided, however, that to the extent necessary to comply with Code Section 409A, the following requirements will be adhered to: (1) such reimbursement arrangements will provide an objectively determinable nondiscretionary definition of the expenses eligible for reimbursement or of the in-kind benefits to be provided, (2) such reimbursement arrangements will provide for the reimbursement of expenses incurred or for the provision of the in-kind benefits during an objectively and specifically prescribed period (including the lifetime of the service provider), (3) such reimbursement arrangements will provide that the amount of expenses eligible for reimbursement, or in-kind benefits provided, during your taxable year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, (4) the reimbursement of an eligible expense will be made on or before the last day of your taxable year following the taxable year in which the expense was incurred, and (5) the right to reimbursement or in-kind benefits will not be subject to liquidation or exchange for another benefit. Additionally, to the extent required by Code Section 409A, an eligible reimbursement expense must be incurred by you no later than the end of the second year following the year in which your Date of Termination occurs and any reimbursement payments to you must be made not later than the end of the third year following your Date of Termination (or, in the case of in-kind benefits, by the end of the second year following your Date of Termination).
9.
Certain Reduction of Payments by the Company .
a.
Best Net . Anything in this Agreement to the contrary notwithstanding, in the event that the independent auditors of the Company (the “ Accounting Firm ”) determine that receipt of all payments or distributions in the nature of compensation to or for your benefit, whether paid or payable pursuant to this Agreement or otherwise (“ Payments ”), would subject you to tax under Section 4999 of the Code, the Payments paid or payable pursuant to this Agreement (the “ COC Payments ”), including payments made with respect to equity-based



compensation accelerated pursuant to Section 4(d) hereof, but excluding payments made with respect to Sections 4(a)(i) and 4(a)(ii) hereof (except as provided below), may be reduced (but not below zero) to the Reduced Amount, but only if the Accounting Firm determines that the Net After-Tax Receipt of unreduced aggregate Payments would be equal to or less than the Net After-Tax Receipt of the aggregate Payments as if the Payments were reduced to the Reduced Amount. If such a determination is not made by the Accounting Firm, you shall receive all COC Payments to which you are entitled under this Agreement.
b.
Reduced Amount . If the Accounting Firm determines that Payments should be reduced to the Reduced Amount, the Company shall promptly give you notice to that effect and a copy of the detailed calculation thereof. Absent manifest error, all determinations made by the Accounting Firm under this Section 9 shall be binding upon you and the Company and shall be made as soon as reasonably practicable and in no event later than twenty (20) business days following the Change of Control Date, or such later date on which there has been a Payment. The reduction of the Payments, if applicable, shall be made by reducing the payments and benefits hereunder in the following order, and only to the extent necessary to achieve the Reduced Amount:
The Company shall reduce or eliminate the Payments, by first reducing or eliminating the portion of the Payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the determination.
All fees and expenses of the Accounting Firm in implementing the provisions of this Section 9 shall be borne by the Company. To the extent requested by you, the Company shall cooperate with you in good faith in valuing services provided or to be provided by you (including without limitation, your agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant) before, on or after the date of a change in ownership or control of the Company (within the meaning of Q&A-2(b) of the Treasury Regulations adopted under Section 280G of the Code (the “ Regulations ”)), such that payments in respect of such services may be considered reasonable compensation within the meaning of Q&A-9 and Q&A-40 to Q&A-44 of the Regulations and/or exempt from the definition of the term “parachute payment” within the meaning of Q&A-2(a) of the Regulations in accordance with Q&A-5(a) of the Regulations.
c.
Subsequent Adjustment . As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to you or for your benefit pursuant to this Agreement which should not have been so paid or distributed (“ Overpayment ”) or that additional amounts which will have not been paid or distributed by the Company to you or for your benefit pursuant to this Agreement could have been so paid or distributed (“ Underpayment ”), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or you that the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, you shall pay any such Overpayment to the Company; provided , however , that no amount shall be payable by you to the Company if and to the extent such payment would not either reduce the amount of taxes to which you are subject under Sections 1 and 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines



that an Underpayment has occurred, any such Underpayment shall be paid promptly (and in no event later than sixty (60) days following the date on which the Underpayment is determined) by the Company to you or for your benefit.
10.
Successors; Binding Agreement .
a.
Assumption by Successor . The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform its obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform such obligations if no such succession had taken place; provided , however , that no such assumption shall relieve the Company of its obligations hereunder. As used herein, the “ Company ” shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees to perform its obligations by operation of law or otherwise.
b.
Enforceability; Beneficiaries . This Agreement shall be binding upon and inure to the benefit of you (and your personal representatives and heirs) and the Company and any organization which succeeds to substantially all of the business or assets of the Company, whether by means of merger, consolidation, acquisition of all or substantially all of the assets of the Company or otherwise, including, without limitation, as a result of a Change of Control or by operation of law. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate.
11.
Definitions . For purposes of this Agreement, the following capitalized terms have the meanings set forth below:
a.
“ Accounting Firm ” has the meaning assigned thereto in Section 9 hereof.
b.
“ Accrued Obligations ” shall mean all compensation earned or accrued through the Date of Termination but not paid as of the Date of Termination, including base salary, bonus for the prior performance year, accrued but unused vacation, and reimbursement of business expenses accrued in accordance with the Company’s business expense reimbursement policies.
c.
“ Adjusted Base Salary ” means the greater of your base salary in effect immediately prior to (i) the Change of Control Date or (ii) the Date of Termination.
d.
“ Agreement ” has the meaning assigned thereto in the second introductory paragraph hereof.
e.
“Benefit Continuation Period ” means the period beginning on the Date of Termination and ending on the last day of the month in which occurs the earlier of (i) the 24-month anniversary of the Date of Termination and (ii) the date on which you elect coverage for you and your covered dependents under substantially comparable benefit plans of a subsequent employer.
f.
“ Board ” has the meaning assigned thereto in the first introductory paragraph hereof.
g.
“ Bonus Opportunity ” for any performance year means your maximum cash bonus opportunity for that year, on the assumption that the Company achieves all applicable performance targets and that you achieve all applicable individual performance criteria.
h.
“ Cause ” shall mean (i) your engaging in willful and continued failure to substantially perform your material duties with the Company (other than due to becoming Disabled); provided, however , that the Company shall have provided you with written notice of such



failure and such failure is not cured by you within twenty (20) calendar days of such notice; (ii) your engaging in misconduct that is materially and demonstrably injurious to the Company; (iii) your conviction of, or plea of no contest to, a felony, other crime of moral turpitude; or (iv) a final non-appealable adjudication in a criminal or civil proceeding that you have committed fraud. For purposes of the previous sentence, no act or failure to act on your part shall be deemed “willful” if it is done, or omitted to be done, by you in good faith and with a reasonable belief that it was in the best interest of the Company.
i.
“ Change of Control ” shall mean:
i.
any “person” (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (A) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Section, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or (iv) any acquisition pursuant to a transaction that complies with Sections 11(i)(iii)(A), (B), and (C);
ii.
during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least three-fourths of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
iii.
there is a consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any



employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination.
j.
“ Change of Control Date ” has the meaning assigned thereto in Section 1 hereof.
k.
“ Change of Control Period ” has the meaning assigned thereto in the second introductory paragraph hereof.
l.
“ COC Payments ” has the meaning assigned thereto in Section 9 hereof.
m.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
n.
“ Company ” has the meaning assigned thereto in the first introductory paragraph hereof.
o.
“ Confidential Information ” shall mean all financial information, trade secrets, personnel records, training and operational manuals, records, contracts, lists, business procedures, business methods, accounts, brochures, and handbooks that was learned or obtained by you in the course of your employment by the Company, and all other documents relating to the Company or persons doing business with the Company that are proprietary to the Company.
p.
“ Date of Termination ” has the meaning assigned thereto in Section 5 hereof.
q.
“ Disability ” shall mean your incapacity due to physical or mental illness as defined in the long-term disability plan sponsored by the Company or an affiliate of the Company for your benefit and which causes you to be absent from the full-time performance of your duties.
r.
“ Effective Period ” shall mean the period commencing on the date hereof (the “ Effective Date ”) and ending on the third anniversary of the date of this Agreement; provided, however , that beginning on the third anniversary of the date of this Agreement and on each one-year anniversary thereafter (each such date a “ Renewal Date ”), the Effective Period shall be automatically extended for a period of two years beginning on such Renewal Date, unless at least sixty (60) calendar days prior to such Renewal Date, the Company shall give notice that the Effective Period shall not be so extended.
s.
“ Good Reason ” shall mean the occurrence of any of the following events or circumstances:
i.
a substantial adverse change in your title, position, offices, or the nature of your duties or responsibilities from those in effect immediately prior to the Change of Control, or in the position, level, or status of the person to whom you report.
ii.
a reduction by the Company in your annual base salary, Target Bonus, or benefits as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter, other than a general reduction in benefits applicable across similarly situated executives within the Company;
iii.
a failure by the Company to pay you material compensation or benefits when due including, without limitation, failure by the Company to pay any accrued relocation expenses or Other Benefits;
iv.
the relocation of the office of the Company where you are principally employed immediately prior to the Change of Control to a location which is more than forty



(40) miles from such office of the Company (except for required travel on the Company’s business to an extent substantially consistent with your customary business travel obligations in the ordinary course of business prior to the Change of Control); or any failure by a successor to the Company to assume and agree to perform this Agreement, as contemplated by Section 10(a) hereof, or any agreement with respect to your outstanding equity awards.
provided, however, that no event or condition set forth in subparagraphs (i) through (v) above shall constitute Good Reason unless (x) you give the Company written notice of objection to such event or condition within sixty (60) calendar days of the initial occurrence of such event or condition and (y) such event or condition is not corrected or remedied, in all material respects, by the Company within thirty (30) calendar days of its receipt of such notice; and provided, further, however , that your mental or physical incapacity following the occurrence of an event described above in subparagraphs (i) through (v) above shall not affect your ability to terminate employment for Good Reason and that your death following delivery of a Notice of Termination shall not affect your estate’s entitlement to the payments and benefits provided hereunder upon an Involuntary Termination. In order to qualify as a termination of employment due to Good Reason, you must resign your employment for Good Reason within forty (40) calendar days after you have provided the Company with the foregoing notice that a Good Reason event has occurred.
t.
“ Involuntary Termination ” shall mean, during the Change of Control Period, (i) your termination of employment by the Company without Cause or (ii) your resignation of employment with the Company for Good Reason.
u.
“ Net After-Tax Receipt ” shall mean the present value (as determined in accordance with Section 280G(d)(4) of the Code) of a Payment net of all taxes imposed on you with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to your taxable income for the immediately preceding taxable year, or such other rate(s) as you certify as likely to apply to you in the relevant tax year(s).
v.
“ Notice of Termination ” has the meaning assigned thereto in Section 5 hereof.
w.
“ Other Benefits ” means, to the extent not theretofore paid or provided, any other amounts or benefits required to be paid or provided to you or that you are eligible to receive under any plan, program, policy, practice, contract or agreement of the Company in accordance with such applicable terms at the time of the Date of Termination. Nothing herein shall prohibit the Company from changing, modifying, amending, or eliminating any benefit plans in accordance with the terms of such plans prior to the Date of Termination, with or without prior notice.
x.
“ Overpayment ” has the meaning assigned thereto in Section 9 hereof.
y.
“ Pro Rata Bonus ” means a pro rata portion of your Bonus Opportunity for the performance year in which the Date of Termination occurs, calculated based on the number of days that you are employed in the performance year up through and including the Date of Termination.
z.
“ Payment ” has the meaning assigned thereto in Section 9 hereof.
aa.
“ Reduced Amount ” shall mean $1,000.00 less than the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999 of the Code.
ab.
“ Severance Policy ” means the Company’s Severance Policy for Key Executives as adopted on July 21, 2014 and as may be amended from time to time.
ac.
“ Target Bonus ” for any year means your total cash target, but not maximum, bonus for that year, on the assumption that the Company has achieved, but not exceeded, all applicable



performance targets and that you have achieved, but not exceeded, all applicable individual performance criteria.
ad.
“ Underpayment ” has the meaning assigned thereto in Section 9 hereof.
ae.
“ Tax Authority ” has the meaning assigned thereto in Section 9 hereof.
12.
Notice . For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Board of Directors, LKQ Corporation, 500 West Madison Street, Suite 2800, Chicago, IL 60661, with a copy to the General Counsel of the Company, or to you at the address set forth on the first page of this Agreement or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
13.
Release. As a condition to receiving any payments or benefits pursuant to this Agreement by reason of your death, Disability or Involuntary Termination, you (or in the case of your death, the executor of your estate) must execute a waiver and release of claims, including confidentiality and non-disparagement covenants, substantially in the form approved by the Company prior to the Change of Control Date (as set forth on Exhibit B attached hereto) (a “ Waiver and Release ”), and such executed Waiver and Release must be delivered to the Company (and not revoked by you) and become effective by its own terms no later than 55 days after the later of (i) the Change of Control or (ii) the termination of your employment with the Company.
14.
Arbitration . Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties hereto shall be settled exclusively by arbitration in Chicago, Illinois under the employment arbitration rules of the American Arbitration Association before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by the Company and you, or, if the Company and you cannot agree on the selection of the arbitrator, such arbitrator shall be selected by the American Arbitration Association. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The parties hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. The Company agrees to pay as incurred, to the fullest extent permitted by law, the costs and fees of the arbitration, including all legal fees and expenses which you may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, you or others of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by you about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
15.
Miscellaneous .
a.
Amendments, Waivers, Etc . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, with respect to the subject matter hereof. Notwithstanding the foregoing and for avoidance of doubt, this Agreement does not supersede or replace the Severance Policy. However, any payments or benefits provided (or to be provided) under this Agreement shall be reduced and offset by payments or benefits of the same type that are



received by you from the Company under the Severance Policy or any other severance arrangement.
b.
Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
c.
Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
d.
No Contract of Employment . Nothing in this Agreement shall be construed as giving you any right to be retained in the employ of the Company or shall affect the terms and conditions of your employment with the Company prior to the commencement of the Change of Control Period.
e.
Withholding . Amounts paid to you hereunder shall be subject to all applicable federal, state and local withholding taxes.
f.
Source of Payments . All payments provided under this Agreement shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. You will have no right, title or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations hereunder. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.
g.
Headings . The headings contained in this Agreement are intended solely for convenience of reference and shall not affect the rights of the parties to this Agreement.
h.
Governing Law . This Agreement is governed by ERISA and, to the extent applicable, the laws of the State of Delaware without regard to conflicts of law.
i.
Effect on Benefit Plans . In the event of any inconsistency between the provisions of this agreement and the provisions of any benefit plan of the Company, the provisions that are more favorable to you shall control.
* * * * *
By signing below, you acknowledge that this Agreement sets forth our agreement on the subject matter hereof. Kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject.
                                                                                                                  












                                
 
 
 
Sincerely,
 
LKQ CORPORATION


 
By:
 
/s/ Victor M. Casini
Name: Victor M. Casini
Title: Senior Vice President and General Counsel
 




Agreed to as of this 1st day of June, 2016



 
  
/s/ Matthew J. McKay
Matthew J. McKay
Senior Vice President of Human Resources (North America)
 

























EXHIBIT A

The Agreement, including its Exhibits, constitutes both the official plan document and the required summary plan description under ERISA.
ELIGIBILITY
The Agreement is effective for the individual named in the Agreement (“ you ”).
BENEFITS
You shall be eligible for severance benefits at such times and in such amounts as may be specified in your Agreement.
OTHER IMPORTANT INFORMATION
A. Agreement Administration . As the Agreement Administrator, the Company has the full and sole discretionary authority to administer and interpret the Agreement, including discretionary authority to determine eligibility for participation in and for benefits under the Agreement, to determine the amount of benefits (if any) payable per participant, and to interpret any terms of this document. All determinations by the Agreement Administrator will be final and conclusive upon all persons and be given the maximum possible deference allowed by law. The Agreement Administrator is the “named fiduciary” of the Agreement for purposes of ERISA and will be subject to the applicable fiduciary standards of ERISA when acting in such capacity. The Company may delegate in writing to any other person all or a portion of its authority or responsibility with respect to the Agreement.
B. Source of Benefits . The Agreement is unfunded, and all severance benefits will be paid from the general assets of the Company or its successor. No contributions are required under the Agreement.
C. Claims Procedure . If you believe you have been incorrectly denied a benefit or are entitled to a greater benefit than the benefit you received under the Agreement, you may submit a signed, written application to the Company’s Senior Vice President of Human Resources (“ Claims Administrator ”). You will be notified in writing of the approval or denial of this claim within ninety (90) days of the date that the Claims Administrator receives the claim, unless special circumstances require an extension of time for processing the claim. In the event an extension is necessary, you will be provided written notice prior to the end of the initial ninety (90) day period indicating the special circumstances requiring the extension and the date by which the Claims Administrator expects to notify you of approval or denial of the claim. In no event will an extension extend beyond ninety (90) days after the end of the initial ninety (90) day period. If your claim is denied, the written notification will state specific reasons for the denial, make specific reference to the Agreement provision(s) on which the denial is based, and provide a description of any material or information necessary for you to perfect the claim and why such material or information is necessary. The written notification will also provide a description of the Agreement’s review procedures and the applicable



time limits, including a statement of your right to bring a civil suit under section 502(a) of ERISA following denial of your claim on review.
You will have sixty (60) days from receipt of the written notification of the denial of your claim to file a signed, written request for a full and fair review of the denial by a review panel which will be a named fiduciary of the Agreement for purposes of such review. This request should include the reasons you are requesting a review and may include facts supporting your request and any other relevant comments, documents, records and other information relating to your claim. Upon request and free of charge, you will be provided with reasonable access to, and copies of, all documents, records and other information relevant to your claim, including any document, record or other information that was relied upon in, or submitted, considered or generated in the course of, denying your claim. A final, written determination of your eligibility for benefits shall be made within sixty (60) days of receipt of your request for review, unless special circumstances require an extension of time for processing the claim, in which case you will be provided written notice of the reasons for the delay within the initial sixty (60) day period and the date by which you should expect notification of approval or denial of your claim. This review will take into account all comments, documents, records and other information submitted by you relating to your claim, whether or not submitted or considered in the initial review of your claim. In no event will an extension extend beyond sixty (60) days after the end of the initial sixty (60) day period. If an extension is required because you fail to submit information that is necessary to decide your claim, the period for making the benefit determination on review will be tolled from the date the notice of extension is sent to you until the date on which you respond to the request for additional information. If your claim is denied on review, the written notification will state specific reasons for the denial, make specific reference to the Agreement provision(s) on which the denial is based and state that you are entitled to receive upon request, and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to your claim, including any document, record or other information that was relied upon in, or submitted, considered or generated in the course of, denying your claim. The written notification will also include a statement of your right to bring an action under section 502(a) of ERISA.
If your claim is initially denied or is denied upon review, you are entitled to receive upon request, and free of charge, reasonable access to, and copies of, any document, record or other information that demonstrates that (1) your claim was denied in accordance with the terms of the Agreement, and (2) the provisions of the Agreement have been consistently applied to similarly situated participants, if any. In pursuing any of your rights set forth in this section, your authorized representative may act on your behalf.
If you do not receive notice within the time periods described above, whether on initial determination or review, you may initiate a lawsuit under Section 502(a) of ERISA.
D. Indemnification. The Company agrees to indemnify its officers and employees and the members of the Board of Directors of the Company from all liabilities from their acts or omissions in connection with the administration, amendment or termination of the Agreement, to the maximum extent permitted by applicable law.
E. Severability. If any provision of the Agreement is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provision of the Agreement, and the Agreement will be construed and enforced as if such provision had not been included.
F. Headings. Headings in the Agreement are for purposes of reference only and will not limit or otherwise affect the meaning hereof.



STATEMENT OF ERISA RIGHTS
As a participant in the Agreement you are entitled to certain rights and protections under ERISA. ERISA provides that all Agreement participants shall be entitled to:
A. Receive Information About Your Agreement and Benefits
Examine, without charge, at the Agreement Administrator’s office and at other specified locations, such as work sites, all documents governing the Agreement.
Obtain, upon written request to the Agreement Administrator, copies of documents governing the operation of the Agreement. The Agreement Administrator may impose a reasonable charge for the copies.
B. Prudent Actions by Agreement Fiduciaries
In addition to creating rights for Agreement participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your Agreement, called “fiduciaries” of the Agreement, have a duty to do so prudently and in the interest of you and other Agreement participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA.
C. Enforce Your Rights
If your claim for a welfare benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.
Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Agreement documents and do not receive it within 30 days, you may file suit in a federal court. In such a case, the court may require the Agreement Administrator to provide the materials and pay you up to $110.00 per day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Agreement Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court after you have completed the Agreement's administrative appeals process. If you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.
D. Assistance With Your Questions
If you have any questions about the Agreement, you should contact the Agreement Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Agreement Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory, or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.



ADDITIONAL AGREEMENT INFORMATION
Name of Agreement:
Change of Control Agreement
Employer Sponsoring Agreement:
LKQ Corporation.
500 West Madison Street, Suite 2800, Chicago, IL 60661
Employer Identification Number:
36-4215970
Agreement Number:
512
Agreement Year:
Calendar Year
Agreement Administrator:
LKQ Corporation
c/o Senior Vice President of Human Resources
500 West Madison Street, Suite 2800, Chicago, IL 60661
Telephone No. (312) 621-1950
Agent for Service of Legal Process:
Agreement Administrator, at the above address
Type of Agreement:
Employee Welfare Benefit Plan providing for severance benefits
Agreement Costs:
The cost of the Agreement is paid by LKQ Corporation
Type of Administration:
Self-administered by the Agreement Administrator




































EXHIBIT B
WAIVER AND GENERAL RELEASE AGREEMENT
This Waiver and Release Agreement (this “ Release ”) is entered into as of the date indicated on the signature page of this Release by and between LKQ Corporation, a Delaware corporation (the “ Company ”) and (“ Employee ”). Employee has been employed by the Company, and the parties are entering into this Release because the employment relationship is ending, without fault or wrongdoing on the part of either the Company or Employee, who agree as follows:
16.
Release .
a.
In exchange for the valuable consideration set forth in the Change of Control Agreement dated as of ____________ ___, 20___ (the “ Letter Agreement ”), between Employee and the Company, the receipt and adequacy of which are herein acknowledged, Employee hereby agrees to release and forever discharge the Company and its present, former and future partners, shareholders, affiliates, direct and indirect parents, subsidiaries, successors, directors, officers, employees, agents, attorneys, heirs and assigns (the “ Released Parties ”), from any and all claims, actions and causes of action (the “ Claims ”) arising out of (i) his employment relationship with and service as an employee of the Company and its affiliates, and the termination of such relationship or service, or (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof, including, but not limited to any Claims under Title VII of the Civil Rights Act of 1964, the Rehabilitation Act of 1973, the Americans With Disabilities Act of 1990, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Employee Retirement Income Security Act of 1974 (ERISA), the Family and Medical Leave Act of 1993, the California Fair Employment and Housing Act; the California Workers’ Compensation Act; the California Unruh and Ralph Civil Rights Laws; the California Alcohol and Drug Rehabilitation Law and any other federal, state or local law, statute, regulation or ordinance, or law of any foreign jurisdiction, whether such Claim arises under statute or common law and whether or not Employee is presently aware of the existence of such Claim. Employee also forever releases, discharges and waives any right he may have to recover in any proceeding brought by any federal, state or local agency against the Released Parties to enforce any laws. To ensure that this Release is fully enforceable in accordance with its terms, Employee agrees to waive any and all rights to any Claims, whether or not he knows or suspects them to exist in his favor, which if known to him would have materially affected his execution of this Release. Notwithstanding the foregoing, this Release does not apply to Employee’s rights, claims, or benefits under the Letter Agreement or to Employee’s rights, if any, to payment of benefits pursuant to any employee benefit plan. This Release also does not apply to Employee’s rights, claims, or benefits claims for unemployment compensation benefits, workers compensation benefits, claims under the Fair Labor Standards Act, health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA), or claims with regard to vested benefits under a retirement plan governed by ERISA.
b.
To ensure that this Release is fully enforceable in accordance with its terms, Employee hereby agrees to waive any and all rights under Section 1542 of the California Civil Code (to the extent applicable) as it exists from time to time, which provides:
A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.



In addition, to ensure that this Release is fully enforceable in accordance with its terms, Employee hereby agrees to waive any protection that may exist under any comparable or similar statute and under any principle of common law of the United States or any and all States.
EMPLOYEE UNDERSTANDS THAT, BY SIGNING THIS RELEASE, EMPLOYEE WILL HAVE WAIVED ANY RIGHT THAT HE MAY HAVE TO BRING A LAWSUIT OR MAKE ANY CLAIM AGAINST THE COMPANY AND THE RELEASED PARTIES BASED ON ANY ACT OR OMISSIONS BY THEM UP TO THE DATE OF SIGNING THIS AGREEMENT.
c.
In further consideration of the payments and benefits provided to Employee under the Letter Agreement, Employee hereby releases and forever discharges the Released Parties from any and all Claims that he may have as of the date he signs this Release arising under the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ ADEA ”). By signing this Release, Employee hereby acknowledges and confirms the following: (i) he was advised by the Company in connection with his termination to consult with an attorney of his choice prior to signing this Release and to have such attorney explain to him the terms of this Release, including, without limitation, the terms relating to his release of claims arising under the ADEA; (ii) if Employee is 40 years of age or older as of the date of execution of this Release, he was given a period of not fewer than 21 calendar days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; (iii) he is providing the release and discharge set forth in this Paragraph 1(c) only in exchange for consideration in addition to anything of value to which he is already entitled and (iv) he can revoke this Release without it becoming effective as described below.
17.
No Legal Claim . Employee has not commenced any legal action, which term includes, without limitation, any demand for arbitration proceedings and any charge, complaint, filing or submission with any federal, state or local agency, court or other tribunal, to assert any Claim against a Released Party, and covenants and agrees not to do so in the future with respect to the matters released herein. If Employee commences or joins any legal action against a Released Party, Employee agrees that such an action is prohibited by this Release, and further agrees to promptly indemnify such Released Party for its reasonable costs and attorneys fees incurred in defending such action as well as forfeit or return any monetary judgment obtained by Employee against any Released Party in such action. Nothing in this Paragraph 2 is intended to reflect any party’s belief that Employee’s waiver of claims under the ADEA is invalid or unenforceable under this Release, it being the intent of the parties that such claims are waived.
18.
Nondisparagement . Employee agrees to refrain, except as required by law or in connection with a judicial proceeding, from making directly or indirectly, now or at any time in the future, any written or oral statements, representations or other communications that disparage or are otherwise damaging to the business or reputation of the Released Parties.
19.
Continuing Obligations . This Release shall not supersede any continuing obligations Employee may have under the terms of the Letter Agreement or any other agreement between Employee and the Company.
20.
Disclaimer . Employee hereby certifies that Employee has read the terms of this Release, that Employee has been advised by the Company to consult with an attorney of Employee’s own choice prior to executing this Release, that Employee has had an opportunity to do so, and that Employee understands the provisions and consequences of this Release. Employee further certifies that the Company has not made any representation to Employee concerning this Release other than those contained herein.



21.
Governing Law . This Release is governed by ERISA and, to the extent applicable, the laws of the State of Delaware without regard to conflicts of law.
22.
Separability of Clauses . If any provisions of this Release shall be finally determined to be invalid or unenforceable under applicable law by a court of competent jurisdiction, that part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining provisions of this Release.
23.
Counterparts . This Release may be executed by the parties hereto in counterparts, each of which shall be deemed an original, but both such counterparts shall together constitute one and the same document.
24.
Effectiveness . This Release shall be effective only when it has been executed by Employee and the executed original has been returned to the Company, and any applicable revocation period has expired.
IN WITNESS WHEREOF, the Company has caused this Release to be signed by its duly authorized officer, and Employee has executed this Release as of the day and year indicated below Employee’s signature.
                                    
 
 
 
LKQ CORPORATION
 
 
By:
 
 
Name:
 
Victor M. Casini
Title:
 
Senior Vice President and General Counsel

If Employee is 40 years of age or older as of the date of execution of this Release, Employee shall have the right to revoke this Release during the seven-day period (the “ Revocation Period ”) commencing immediately following the date he signs and delivers this Release to the Company. The Revocation Period shall expire at 5:00 p.m. [INSERT TIME ZONE] Time on the last day of the Revocation Period; provided , however , that if such seventh day is not a business day, the Revocation Period shall extend to 5:00 p.m. on the next succeeding business day. In the event Employee revokes this Release, all obligations of the Company under this Release and under any agreement which are conditional upon this Release shall terminate and be of no further force and effect as of the date of such revocation. No such revocation by Employee shall be effective unless it is in writing and signed by him and received by the Company prior to the expiration of the Revocation Period at the following address:

LKQ Corporation
ATTN: General Counsel
500 W. Madison Street, Suite 2800
Chicago, IL 60661







I HAVE READ AND AGREE
TO THIS RELEASE:
 
 
Name: Matthew J. McKay
Title: Senior Vice President of Human Resources (North America)
Date: June 1, 2016



Exhibit 10.40


EXECUTION VERSION
AMENDMENT NO. 2
to
RECEIVABLES PURCHASE AGREEMENT

Dated as of November 29, 2016

THIS AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT (this “ Amendment ”) is entered into as of November 28, 2016 by and among LKQ Receivables Finance Company, LLC, a Delaware limited liability company (the “ Seller ”), LKQ Corporation, a Delaware corporation (the “ Servicer ”), the conduits party hereto (the “ Conduits ”), the financial institutions party hereto (together with the Conduits, the “ Purchasers ”), the managing agents party hereto (the “ Managing Agents ”) and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent (the “ Administrative Agent ”) for the Purchasers under the RPA (as defined below).
PRELIMINARY STATEMENTS
A.      The Seller, the Servicer, the Purchasers, the Managing Agents and the Administrative Agent are parties to that certain Receivables Purchase Agreement dated as of September 28, 2012 (as amended pursuant to that certain Amendment No. 1 to Receivables Purchase Agreement, dated as of September 29, 2014 and as may be further amended, restated, supplemented or otherwise modified from time to time, the “ RPA ”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the RPA.
B.      The Seller, the Servicer, the Purchasers, the Managing Agents and the Administrative Agent have agreed to amend the RPA on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Amendments . Effective as of the date hereof, subject to the execution of this Amendment by the parties hereto and the satisfaction of the conditions precedent set forth in Section 1 below, the RPA is amended as follows:
(a) Section 5.1(aa) of the RPA is amended and restated in its entirety as follows:
Anti-Terrorism Laws; Anti-Corruption Laws and Sanctions . Policies and procedures have been implemented and are currently maintained by Servicer that are designed to achieve compliance by the Transaction Parties and their respective Subsidiaries with Anti-Terrorism Laws, Anti-Corruption Laws and applicable Sanctions, giving due regard to the nature of such Person’s business and activities, and each of the Transaction Parties, their respective Subsidiaries and, to the knowledge of the Authorized Officers of each of the Transaction Parties, its respective officers, employees, directors and agents acting in such capacity in connection with or directly benefitting from the credit facility established hereby, are in compliance with Anti-Terrorism Laws, Anti-Corruption Laws and applicable Sanctions, in each case in all material respects. None of (a) the Transaction Parties or any of their respective Subsidiaries or, to the knowledge of the Authorized Officers of the Transaction Parties, as applicable, any of their respective directors, officers, employees, or agents that will act in such capacity in connection with or directly benefit from the credit facility established hereby, is a Sanctioned Person, and (b) the Transaction Parties nor any of their respective Subsidiaries is organized or resident in a Sanctioned Country, except, in each case, to the extent such activities or transactions are licensed by the Office of Foreign Assets Control of the U.S. Department of Treasury or otherwise not prohibited under applicable Sanctions. No proceeds of any purchase hereunder shall be used


by any Transaction Party in any manner will violate Anti-Terrorism Laws, Anti-Corruption Laws or applicable Sanctions.
(b) Section 7.1(n) of the RPA is amended and restated in its entirety as follows:
Anti-Terrorism Laws; Anti-Corruption Laws and Sanctions . Servicer shall maintain and enforce policies and procedures that are designed in good faith and in a commercially reasonable manner to promote and achieve compliance, in the reasonable judgment of Servicer, by the Seller Party, each Originator and each of their respective Subsidiaries and their respective directors, officers, and employees with Anti-Terrorism Laws, Anti-Corruption Laws and applicable Sanctions, in each case giving due regard to the nature of such Person’s business and activities.
(c) Section 7.2(h) of the RPA is amended and restated in its entirety as follows:
Anti-Terrorism Laws; Anti-Corruption Laws and Sanctions . Such Seller Party shall not (and will not permit any Originator to) use directly or indirectly, and each Seller Party shall procure that its Subsidiaries and its or their respective directors, officers and employees shall not use directly or indirectly, the proceeds of any purchase hereunder, (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Terrorism Laws or Anti-Corruption Laws, (B) for the purpose of funding or financing any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, in each case to the extent doing so would violate any Sanctions, or (C) in any other manner that would result in liability to any party hereto under any applicable Sanctions or the violation of any Sanctions by any such Person.
(d) The definition of “LIBO Rate” appearing in Exhibit I to the RPA is hereby amended to add the following sentence at the end thereof:
Notwithstanding the foregoing, at no time shall the LIBO Rate be less than 0%.
(e) The definition of “Liquidity Termination Date” appearing in Exhibit I to the RPA is hereby amended and restated as follows:
“ Liquidity Termination Date ” means November 8, 2019.
(f) The definition of “Purchase Limit” appearing in Exhibit I to the RPA is hereby amended and restated as follows:
“ Purchase Limit ” means $100,000,000, as such amount may be increased in accordance herewith.
(g) The definition of “Sanctioned Country” appearing in Exhibit I to the RPA is hereby amended and restated as follows:
“ Sanctioned Country ” means, at any time, a country or territory which is the subject or target of any Sanctions.
(h) Exhibit I to the RPA is amended to add the following new defined term in appropriate alphabetical order therein:
“ Anti-Terrorism Laws ” shall mean any applicable law relating to money laundering or terrorism, including Executive Order 13224, the regulations promulgated by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, the Bank Secrecy Act, the USA Patriot Act, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., the Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any executive orders or regulations promulgated thereunder.
(i) Schedule A of the RPA is amended and restated in its entirety in the form attached as Exhibit 1 hereto.


Section 2. Conditions Precedent . This Amendment shall become effective and be deemed effective, as of the date first above written, upon receipt by the Administrative Agent of (a) one copy of this Amendment duly executed by each of the parties hereto and (b) one copy of that certain amended and restated fee letter, dated as of the date hereof, duly executed by each of the parties thereto.
Section 3. Covenants, Representations and Warranties of the Seller and the Servicer .
(a) Upon the effectiveness of this Amendment, each of the Seller and the Servicer hereby reaffirms all covenants, representations and warranties made by it in the RPA, as amended, and agrees that all such covenants, representations and warranties shall be deemed to have been re-made as of the effective date of this Amendment.
(b) Each of the Seller and the Servicer hereby represents and warrants as to itself (i) that this Amendment constitutes the legal, valid and binding obligation of such party enforceable against such party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general principles of equity which may limit the availability of equitable remedies and (ii) upon the effectiveness of this Amendment, that no event shall have occurred and be continuing which constitutes an Amortization Event or a Potential Amortization Event.
Section 4. Fees, Costs, and Expenses . Without limiting the rights of the Administrative Agent, the Managing Agents and the Purchasers set forth in the RPA and the other Transaction Documents, the Seller agrees to pay on demand all reasonable fees and out-of-pocket expenses of external counsel and auditors for the Administrative Agent, the Managing Agents and the Purchasers incurred in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered in connection herewith, with respect to advising the Administrative Agent, the Managing Agents and the Purchasers as to their rights and responsibilities hereunder and thereunder and in connection with the follow-up monitoring and auditing related to the Receivables reporting.
Section 5. Reference to and Effect on the RPA .
(a) Upon the effectiveness of this Amendment, each reference in the RPA to “this Agreement,” “hereunder,” “hereof,” “herein,” “hereby” or words of like import shall mean and be a reference to the RPA as amended hereby, and each reference to the RPA in any other document, instrument or agreement executed and/or delivered in connection with the RPA shall mean and be a reference to the RPA as amended hereby.
(b) Except as specifically amended hereby, the RPA and other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Purchaser, any Managing Agent or the Administrative Agent under the RPA or any of the other Transaction Documents, nor constitute a waiver of any provision contained therein.
Section 6. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK .
Section 7. Execution in Counterparts . This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument.
Section 8. Headings . Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
[Remainder of page left intentionally blank]
    





IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the date first set forth above by their respective officers thereto duly authorized, to be effective as hereinabove provided.


LKQ RECEIVABLES FINANCE COMPANY, LLC, as Seller


By:
/s/ Dominick P. Zarcone                         
Name: Dominick P. Zarcone
Title: Executive VP and CFO


LKQ CORPORATION, as Servicer


By:
/s/ Walter P. Hanley
Name: Walter P. Hanley
Title: Associate General Counsel



VICTORY RECEIVABLES CORPORATION, as a Conduit

By:
/s/ David V. DeAngelis
Name: David V. DeAngelis
Title: Vice President



THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as a Financial Institution, as Administrative Agent and as a Managing Agent

By:
/s/ Eric Williams
Name: Eric Williams
Title: Managing Director



EXHIBIT 1

SCHEDULE A
    
COMMITMENTS; PURCHASER GROUPS

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Managing Agent:          The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Group Purchase Limit:      $100,000,000
Conduit:              Victory Receivables Corporation
Conduit Purchase Limit:      $100,000,000
Financial Institution:          The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Commitment:              $100,000,000


Exhibit 10.47





RHINO EQUITY CO. LIMITED
and
THE SENIOR MANAGEMENT SELLERS
and
LKQ ITALIA S.R.L.
and
LKQ CORPORATION
Agreement for the Sale and Purchase of the Rhiag Group made by way of Deed
22  December 2015


004600-0228-14943-Active.18252126.10

TABLE OF CONTENTS
1. Interpretation     1
2. Sale and Purchase     11
3. Consideration     11
4. Locked Box     12
5. Conditions     15
6. No Frustrating Action     18
7. Pre-Completion Undertakings     18
8. Completion     21
9. The Sellers’ Warranties and Undertakings     23
10. The Buyer’s Warranties and Undertakings and the Guarantor’s Warranties and Undertakings     27
11. Tax-Related Deferred Consideration     30
12. Senior Management Sellers’ Representative     31
13. Post Completion Undertakings     32
14. Confidential Information     33
15. Announcements     35
16. Costs and Expenses     36
17. Variation     36
18. Remedies and Waivers     36
19. Effect of Completion     36
20. Payments     36
21. Set-Off     37
22. Invalidity     37
23. Contracts (Rights of Third Parties) Act 1999     38
24. Further Assurances     38
25. Entire Agreement     38
26. Assignment     39
27. Notices     40
28. Governing Law and Jurisdiction     42
29. Counterparts     42
30. Agent for Service     43
SCHEDULE 1 Information about the Senior Management Sellers 54
SCHEDULE 2 Completion Requirements 55
SCHEDULE 3 Action Pending Completion 58
SCHEDULE 4 Permitted Leakage 61

004600-0228-14943-Active.18252126.10

SCHEDULE 5 Senior Management Sellers’ Re presentative     63
SCHEDULE 6 Sellers Warranties and Limitations of Liability 65
SCHEDULE 7 Escrow 77

Agreed Form Documents
Business Warranties Disclosure Exhibit
Company Data Book
Data Room Index
Individual Entitlement Certificate
Master Allocation Schedule
Locked Box Accounts
Tax Deed

Other Documents

Approved Company Adviser Fee Schedule (Estimated)
Approved Shareholder Adviser Fee Schedule (Estimated)
Buyer Registration Deed



004600-0228-14943-Active.18252126.10

This agreement (the “ Agreement ”) is made by way of deed on 22 December 2015 between Rhino Equity Co. Limited, a private limited company incorporated in England and Wales with registered number 8740104 and having its registered office at 33 Jermyn Street, London, SW1Y 6DN (the “ Institutional Seller ”); the persons whose names and addresses are set out in Schedule 1 (each a “ Senior Management Seller ” and together the “ Senior Management Sellers ” and together with the Institutional Seller, the “ Sellers ” and each one a “ Seller ”); and LKQ Italia S.r.l., a company incorporated in Italy by deed of incorporation dated 21 December 2015 acting by Robert Wagman, its director (the “ Buyer ”); and LKQ Corporation (the “Guarantor”), a company incorporated in the State of Delaware and having its principal office at 500 West Madison Street, Suite 2800, Chicago IL 60661, USA.
RECITALS
The Sellers together own the entire issued share capital of Rhino HoldCo Limited (the “ Company ”). Details of the Company are contained in the Company Data Book (as defined below). The Sellers wish to sell and the Buyer, acting by its director, Robert Wagman (the “ Buyer Incorporation Director ”), wishes to purchase all of the issued share capital of the Company free from Encumbrances on the terms, and subject to the conditions, set out in this Agreement. The Buyer has been incorporated as an indirect subsidiary of the Guarantor pursuant to a deed of incorporation (the “ Deed of Incorporation ”) entered into in the presence of a notary, however the completion of its incorporation remains subject to the registration of the Buyer in the Italian Companies’ Register.
THE PARTIES AGREE as follows:


004600-0228-14943-Active.18252126.10
2

1. Interpretation
1.1     In this Agreement:
“ 2013 SPA ” means the share purchase agreement entered into between Rhino Midco 2 Limited and Lanchester S.A., to which Rhino Bidco S.p.A. acceded as nominated purchaser, and dated 9 October 2013 (as amended on 16 December 2013);
“ Act ” means the Companies Act 2006;
“ Advisers ” means the advisers shown in the Approved Company Adviser Fee Schedule and/or the Approved Shareholder Adviser Fee Schedule and “ Adviser ” means any one of them;
“ Affiliate ” means, in relation to a person:
(a)     the general partner, trustee, nominee, manager or investment adviser of such person;
(b)     any other person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such person, and the term “ control ” (including the terms “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through ownership of a majority of voting securities, by contract or otherwise (save that, unless expressly stated otherwise, portfolio companies of funds advised by Apax Partners LLP (including subsidiaries of such portfolio companies) shall not be considered Affiliates);
(c)     any other Fund which is advised by, or the assets of which are managed (whether solely or jointly with others) by, that person or a group undertaking of that person;
(d)     any other Fund of which that person, or that person’s (or group undertaking of that person’s) general partner, trustee, nominee, manager or adviser, is a general partner, trustee, nominee, manager or adviser;
(e)     any other Fund which is advised by, or the assets of which are managed (whether solely or jointly with others) by, that person’s (or a group undertaking of that person’s) general partner, trustee, nominee, manager or adviser; or
(f)     in the case of a person that is an individual, any spouse, co-habitee and/or lineal descendant by blood or adoption, step-child, or any person or persons acting in its or their capacity as trustee or trustees of a trust of which such individual is the settler;
provided , however , that (i) a Group Company shall not be an Affiliate of a Seller and (ii) the term “ adviser ” when used above shall mean an entity which provides a Fund with advice in relation to the management of investments of that Fund which (other than in relation to actually making decisions to implement such advice) is substantially the same as the services which would be provided by a manager of the Fund and such adviser effectively forms part of the structure of the Fund;
“ Agreed Rate ” means:
(a)     if the Completion Date falls on or before 1 April 2016, 6.5 per cent per annum calculated on the basis of a 365-day year; or
(b)     if the Completion Date falls on or after 2 April 2016 and on or before 31 July 2016, 8.25 per cent per annum calculated on the basis of a 365-day year, provided that this part (b) shall not apply in the event that the conditions in Clause 5.1 have been satisfied, but one or more of the Sellers has failed to fulfil their obligations in relation to Completion pursuant to Clause 8 causing Completion to be delayed beyond 1 April 2016, in which case the interest rate in part (a) shall apply; or
(c)     if the Completion Date falls on or after 1 August 2016, 10 per cent. per annum calculated on the basis of a 365-day year, provided that this part (c) shall not apply in the event that the conditions in Clause 5.1 have been satisfied, but one or more of the Sellers has failed to fulfil their obligations in relation to Completion pursuant to Clause 8 causing Completion to be delayed beyond 31 July 2016, in which case the interest rate in part (b) shall apply, unless Completion would have taken place, but for the failure of one or more Sellers to fulfil their obligations in relation to Completion pursuant to Clause 8, on or before 1 April 2016 in which case the interest rate in part (a) will apply,

004600-0228-14943-Active.18252126.10
3

in each case, with the relevant rate to apply from (but excluding) the Locked Box Date to (and including) the Completion Date;
“ Applicable Antitrust Laws ” means the EC Merger Regulation (Council Regulation 139/2004/EC) and the Law of Ukraine on Protection of Economic Competition of 2001;
“ Approved Company Adviser Fee Schedule ” means the schedule setting out fees paid or payable by a Group Company in connection with the Transaction and the proposed initial public offering and admission to listing of a Group Company or related matters approved by the Institutional Seller and delivered to the Buyer and the Senior Management Sellers’ Representative in accordance with Clause 7.5;
“ Approved Company Adviser Fees ” means the fees (together with VAT payable and disbursements and expenses) set out in, and to be apportioned in accordance with, the Approved Company Adviser Fee Schedule;
“ Approved Shareholder Adviser Fee Schedule ” means the schedule setting out fees payable by one or more Sellers, approved by the Institutional Seller and delivered to the Buyer and the Senior Management Sellers’ Representative in accordance with Clause 7.6;
“ Approved Shareholder Adviser Fees ” means the fees (together with VAT payable and disbursements and expenses) set out in, and to be apportioned in accordance with, the Approved Shareholder Adviser Fee Schedule;
“ Available Tax Saving ” has the meaning given to it in Clause 4.4;
“ Business Day ” means a day other than a Saturday or Sunday or public holiday on which banks are open for business in London, Milan and New York;
“ Business Warranties Disclosure Exhibit ” means the document containing the relevant disclosures in respect of the Warranties and delivered to the Buyer immediately prior to this Agreement being signed;
“ Buyer Director ” means any person nominated by the Buyer to be appointed as a director of any Group Company with effect from Completion provided that person is not disqualified from being a director and has agreed in writing to act;
“ Buyer Incorporation Director ” shall have the meaning set out in the Recitals;
“ Buyer Registration Deed ” shall have the meaning set out in Clause 10.5.6;
“ Buyer Registration Effective Date ” means the date on which the incorporation of the Buyer takes full effect vis-à-vis third parties, following the registration of the Deed of Incorporation at the Italian Companies Register, pursuant to Clause 10.6.1;
“ Buyer’s Financing Agreements ” means the credit agreement dated 25 March 2011 made between, among others, the Guarantor (and certain of its Affiliates), the lenders party thereto and Wells Fargo Bank, National Association (as Administrative Agent), as the same was amended and restated as of 30 September 2011, 3 May 2013 and 27 March 2014 and as further amended, supplemented and/or restated from time to time in accordance with this Agreement;
“ Buyer’s Group ” means the Buyer, its ultimate parent undertaking and their respective subsidiary undertakings from time to time and includes, for the avoidance of doubt, each Group Company after Completion;
“ Company ” has the meaning given to it in the Recitals;
“ Company Data Book ” means the document in the agreed form containing brief particulars of the Company and the Subsidiaries;
“ Competent Antitrust Authorities ” means the European Commission and the Antimonopoly Committee of Ukraine;
“ Completion ” means the completion of the sale and purchase of the Securities in accordance with Clause 8;
“ Completion Date ” means the date upon which Completion actually occurs in accordance with Clause 8, being the later of (i) the date falling seven Business Days immediately following satisfaction or waiver of the condition in Clause 5.1.1; and (ii)

004600-0228-14943-Active.18252126.10
4

the date falling five Business Days following delivery by the Institutional Seller of the Master Allocation Schedule to the Buyer, pursuant to Clause 3.3 (or such earlier date as the Buyer and the Institutional Seller shall agree);
“ Connected Persons ” means, in relation to a Seller, its Affiliates and “ Connected Person ” shall mean any of them;
“ Data Room ” means the virtual data room established by the Company containing information relating to the Group and managed by RR Donnelley, made available to the Buyer as evidenced by the Data Room Index and the CD of the data room provided to the Buyer;
“ Data Room Index ” means the data room index in the agreed form;
“ Deed of Incorporation ” shall have the meaning set out in the Recitals;
“ Default Rate ” means 5 per cent per annum calculated on the basis of a 365-day year;
“ Electronic Communication ” means an electronic communication as defined in the Electronic Communications Act 2000;
“ Employee ” means an individual who has entered into or works under a contract of employment with any Group Company and also includes any director or other officer of any Group Company whether or not he has entered into or works or worked under a contract of employment with any Group Company;
“ Encumbrance ” means any lien, charge (whether fixed, floating or equitable), mortgage, pledge, option, assignment in security, hypothecation, security interest, title retention or any other agreement or arrangement the effect of which is the creation of security, or any other interest, equity or other right of any person (including any right to acquire, option, right of first refusal or right of pre-emption), or any agreement or arrangement to create any of the same;
“ Escrow Account ” means the designated interest bearing account held with the Escrow Agent in the joint names of the Institutional Seller, the Senior Management Sellers’ Representative and the Buyer;
“ Escrow Agent ” means a reputable escrow agent to be appointed as escrow agent pursuant to paragraph 11 of Schedule 7;
“ Escrow Amount ” means €5,000,000 to be managed in accordance with the provisions of Schedule 7;
“ External Financing ” means the financing provided to members of the Group under the External Financing Documents;
“ External Financing Documents ” means (a) the Revolving Credit Facility Agreement and (b) the Senior Notes Indenture;
“ Facility Agent ” has the meaning attributed to such term in the Revolving Credit Facility Agreement;
“ Fund ” means any unit trust, investment trust, investment company, limited partnership, general partnership or other collective investment scheme or any body corporate or other entity, in each case the assets of which are managed professionally for investment purposes;
“ Governmental Entity ” means, anywhere in the world, any supra-national, national, state, federal, provincial, municipal or local government, any subdivision, court, administrative agency or commission or other authority thereof, or any quasi-governmental or private body or similar body exercising any regulatory, Tax, competition, importing or other governmental or quasi-governmental authority or functions, including the European Union and European Commission;
“ Group ” means the Company and each Subsidiary;
“ Group Company ” means the Company or a Subsidiary and “ Group Companies ” means all of them;
“ Individual Entitlement Certificate ” shall have the meaning set out in Clause 3.5;
“ Insurance Policy ” means a warranty and indemnity insurance policy taken out by the Buyer in respect of the Transaction;
“ Investor Director ” means any director, officer and/or employee of the Institutional Seller or any of its Affiliates who is a director of any Group Company;

004600-0228-14943-Active.18252126.10
5

“ Italian Companies Register ” means the Italian Companies' Register ( Registro delle Imprese );
“ Law ” means any statute, law, subordinate legislation, constitutional provision, code, regulation, ordinance, instrument, by-law, rule, decision, order, writ, injunction, decree, permit, concession, grant, directive, binding guideline or policy, requirement of, or other governmental restriction of or determination by, any Governmental Entity or any official interpretation of any of the foregoing by any Governmental Entity;
“ Locked Box Accounts ” means the aggregate of the unaudited individual entity trial balances of each of the Company and Rhino Topco 2 Limited and the unaudited, condensed, consolidated, interim income statement of Rhino Midco 2 Limited and Rhiag Group S.p.A., each for the nine month period ended on the Locked Box Date and the audited consolidated accounts of Rhino Bondco S.p.A. for the nine month period ended on the Locked Box Date in the agreed form and prepared in accordance with the Accounting Principles, comprising the balance sheet, the profit and loss account, and the 'note esplicative', as approved by Rhino Bondco S.p.A.;
“ Locked Box Date ” means 30 September 2015;
“ Long Stop Date ” means 30 June 2016;
“ Losses ” means any direct or indirect losses, damages, claims, fees, fines, costs and expenses, interest, awards, settlements, liabilities, recourses, judgments and penalties, including reasonable attorneys’ fees and expenses and any amounts in respect of any Tax whether or not involving a third party claim;
“ MAC Condition ” shall have the meaning set out in Clause 5.1.2;
“ managed ” means a bona fide relationship of management where the relevant managing person or entity is bona fide primarily responsible for the investment decisions made for the fund, trust or company or with respect to the managed party’s holding of investor instruments, regardless of whether the relationship is characterised by the managing person or entity and the managed party as a relationship of investment manager, investment adviser, trustee or agent and “ fund manager ” and “ managing ” shall be construed accordingly;
“ Master Allocation Schedule ” means the schedule in the agreed form setting out, among other things, details of the holdings of Securities of the Sellers and their respective entitlement to the Preference Share Consideration and the Ordinary Share Consideration as well as their Proportionate Share of the Escrow Amount;
“ Material Adverse Change ” means any change, development, occurrence or circumstance which is materially adverse to the business or financial condition or which materially and adversely affects, or is reasonably likely to affect, the results of operations of the Group, taken as a whole, if and to the extent such change, development occurrence or circumstance, results in a diminution of enterprise value of the Group, taken as a whole, in an amount in excess of €200,000,000 provided, however, that nothing arising out of, relating to or resulting from any of the following shall constitute or be deemed to contribute to a Material Adverse Change, and shall not be taken into account in determining whether a Material Adverse Change has occurred:
(a)     any adverse change, development, occurrence, effect, circumstance or condition caused by changes after the date of this Agreement in (i) general economic or political conditions in Europe or any country in Europe, or the United States, and/or any other regions where any Group Company operates or (ii) Europe, the United States, and/or global financial, banking or securities markets (including any disruption thereof, any decline in the price of any security or any market index and any currency rate fluctuations);
(b)     changes or developments after the date of this Agreement generally applicable to the industry in which the Group operates;
(c)     changes after the date of this Agreement in any statute, law (including common law), ordinance, regulation, rule, guideline, order, writ, decree, permit, agency requirement or licence of any Governmental Entity applicable to the Group;
(d)     any natural disasters or acts of terrorism, war or an escalation or worsening thereof or sabotage (other than any actual, uninsured damage or casualty loss to any Group Company or its properties or assets);
(e)     changes after the date of this Agreement in applicable accounting standards or the interpretation thereof;

004600-0228-14943-Active.18252126.10
6

(f)     the announcement, negotiation, execution, performance or compliance with the terms of, or taking any actions required to be taken by, any of the Transaction Documents or any of the transactions contemplated by the Transaction Documents, including any termination of, reduction in or other negative impact on relationships or dealings, contractual or otherwise, with any customers, suppliers, distributors, partners or employees of any Group Company due to the announcement and performance of this Agreement, the identity of the parties to this Agreement or any action taken by the Buyer or any entity in the Buyer’s Group or its or their respective representatives; and
(g)     any event that occurs or any action taken or omitted to be taken by the Group at the written request or written direction or with the prior written consent of the Buyer;
“ Notice ” shall have the meaning set out in Clause 27.1;
“ Ordinary Share Consideration ” means the amount equal to the Total Gross Consideration less the Preference Share Consideration;
“ Ordinary Shares ” means the ordinary shares of €1.00 each in the capital of the Company;
“ Permitted Leakage ” means a payment or action set out in Schedule 4 of this Agreement;
“ Preference Share Consideration ” means €127,686,755;
“ Preference Shares ” means the preference shares of €1.00 each in the capital of the Company;
“ Press Release ” means any press release to be issued by Apax Partners LLP and/or an Affiliate of Apax Partners LLP and/or by the Buyer and/or an Affiliate of the Buyer on or after the date of this Agreement as may be agreed from time to time by the Buyer and the Institutional Seller;
“ Proportionate Share ” means, in respect of each relevant Seller for the purpose in which it is being used to apportion an amount amongst all Sellers or a group of Sellers, that share determined by reference to that Seller’s share of the aggregate of the Preference Share Consideration and Ordinary Share Consideration as shown against its name in columns (6) and (8) of the Master Allocation Schedule relative to the total aggregate share of the Preference Share Consideration and Ordinary Share Consideration as shown in columns (6) and (8) of the Master Allocation Schedule of all relevant Sellers for that purpose;
“ Revolving Credit Facility Agreement ” means the revolving credit facility agreement dated 5 November 2013 (as amended and/or restated from time to time) between, amongst others, Rhiag Group S.p.A. as parent and BNP Paribas, Italian Branch as facility agent;
“ Securities ” means the Ordinary Shares and the Preference Shares;
“ Senior Management Sellers’ Representative ” means Luca Zacchetti, failing which any other Senior Management Seller appointed for this purpose by the Institutional Seller;
“ Senior Notes Indenture ” means the senior notes indenture dated 5 November 2013 (as amended and/or restated from time to time) between, amongst others, Rhino Bondco S.p.A. as issuer and The Law Debenture Trust Corporation p.l.c. as trustee and Rappresentante Comune of the holders of the notes;
“ Subsidiaries ” means all of the subsidiary undertakings of the Company and “ Subsidiary ” means any of them;
“ Tax ” or “ Taxation ” means all forms of tax, duty, rate, levy, charge, instalment, contributions, customs or other import or export duties or other imposition, assessment, liability, deduction or withholding whenever and by whatever authority imposed (including income tax, corporation tax, capital gains tax, inheritance tax, value added tax, environmental tax, excise duties, stamp duty, stamp duty reserve tax, stamp duty land tax, national insurance and social security or other similar contributions) and whether of the United Kingdom, the United States of America or elsewhere, together with any interest, penalty, charge, surcharge instalments, contributions, customs or other import duties or fine in connection with any taxation, and regardless of whether any of the above are chargeable directly or primarily against or attributable directly or primarily to a Group Company or any other person and regardless of whether any amount in respect of any of them is recoverable from any other person, and “ Taxes ” has the corresponding meaning;

004600-0228-14943-Active.18252126.10
7

“ Tax Authority ” means any local municipal, governmental, state, federal, provincial or other fiscal, customs, revenue or excise authority, body, official or person anywhere in the world with responsibility for, or competent to impose, collect or administer, any form of Taxation;
“ Tax Deed ” means the tax deed in the agreed form to be entered into at Completion by the Senior Management Sellers and the Buyer;
“ Tax Returns ” means any information, notices, accounts, statements, reports, forms, computations, declarations and returns which are required to be made and submitted to any Tax Authority;
“ Total Gross Consideration ” means the sum of (A-B) + C, where A is €570,150,000, B is the total amount of fees (together with irrecoverable VAT payable and disbursements and expenses) shown on the Approved Company Adviser Fee Schedule, and C is the amount of interest on the sum of A-B calculated at the Agreed Rate from (but excluding) the Locked Box Date to (and including) the Completion Date;
“ Transaction ” means the acquisition by the Buyer of the entire issued share capital of the Company pursuant to the terms of this Agreement;
“ Transaction Documents ” means this Agreement, the Master Allocation Schedule, the Approved Company Adviser Fee Schedule, the Approved Shareholder Adviser Fee Schedule, the Business Warranties Disclosure Exhibit, the Company Data Book, the Data Room Index, the Tax Deed, the Individual Entitlement Certificate and the Locked Box Accounts;
“ Trustee ” has the meaning attributed to such term in the Revolving Credit Facility Agreement;
“ Unwarranted Information ” has the meaning set out in Clause 25.3;
“ Warranties ” means the warranties given by the Sellers set out in Schedule 6 and “Warranty” means any of them; and
“ Warranty Claim ” means a claim for any breach under any of the Warranties.
1.2     In this Agreement, a reference to:
1.2.1     a “ subsidiary undertaking ” or “ parent undertaking ” is to be construed in accordance with section 1162 of the Act;
1.2.2     a party being liable to another party, or to liability, includes, but is not limited to, any liability in equity, contract or tort (including negligence) or under the Misrepresentation Act 1967;
1.2.3     a document in the “ agreed form ” is a reference to a document in a form approved and for the purposes of identification initialled by or on behalf of the Buyer, the Institutional Seller and the Senior Management Sellers’ Representative (with such amendments as may be agreed in writing by the Buyer and the Senior Management Sellers’ Representatives);
1.2.4     a statutory provision includes a reference to the statutory provision as amended, modified or re-enacted or both from time to time and any subordinate legislation made under the statutory provision (as so amended, modified or re-enacted), except to the extent that any liability of any party under this Agreement would not have arisen but for an amendment or modification or re-enactment or subordinate legislation made after the date of this Agreement;
1.2.5     a “ person ” includes a reference to any individual, firm, company, corporation or other body corporate, government, state or agency of a state or any joint venture, association or partnership (whether or not having separate legal personality) and includes a reference to that person’s legal personal representatives, successors and permitted assigns;
1.2.6     a “ party ” includes a reference to that party’s permitted assigns and his estate and personal representatives;
1.2.7     a Clause, paragraph or Schedule, unless the context otherwise requires, is a reference to a clause or paragraph of, or schedule to, this Agreement;

004600-0228-14943-Active.18252126.10
8

1.2.8     any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include what most nearly approximates in that jurisdiction to the English legal term and references to any English statute shall be construed so as to include equivalent or analogous Laws of any other jurisdiction;
1.2.9     “ material ” or any similar expression shall, unless otherwise specified, be construed in the context of the Group, taken as a whole;
1.2.10      “ Euros ” or “ € ” is to the lawful currency of the member states of the European Union that have adopted the single currency in accordance with the Treaty Establishing the European Community, as amended by the Treaty of the European Union;
1.2.11     times of the day are to London time;
1.2.12     the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation”, unless the context otherwise requires or unless otherwise specified;
1.2.13     writing includes typing, printing, and facsimile but excludes any other form of Electronic Communication;
1.2.14     a document is to that document as amended, varied or novated from time to time otherwise than in breach of this Agreement or that document; and
1.2.15     a company or firm includes any company or firm in succession to all, or substantially all, of the business of that company or firm.
1.3     The headings in this Agreement do not affect its interpretation.
1.4     Save as otherwise provided in this Agreement, where any obligation, representation, warranty or undertaking under or in connection with the Transaction Documents is expressed to be made, undertaken or given by two or more of the Sellers, the liability of those Sellers shall be several (and not joint or joint and several).
1.5     The eiusdem generis rule does not apply to this Agreement. Accordingly, specific words indicating a type, class or category of the thing shall not restrict the meaning of general words following such specific words, such as general words introduced by the word “ other ” or a similar expression. Similarly, general words followed by specific words shall not be restricted in meaning to the type, class or category of the thing indicated by such specific words.

2.      Sale and Purchase
2.1     Subject to the conditions referred to in Clause 5.1 being satisfied, each of the Sellers shall sell, and the Buyer shall purchase, full legal and beneficial title to those Securities set out opposite the name of such Seller in columns (5) and (7) of the Master Allocation Schedule, on the terms set out in this Agreement.
2.2     The Securities shall be sold free from all Encumbrances and together with all rights attaching to them as at the Completion Date, including the right to receive all distributions and dividends declared, paid, made or accruing from the Completion Date, on the terms set out in this Agreement.
2.3     The consideration for the sale of the Securities shall be determined in accordance with Clause 3.
2.4     Each Seller severally covenants (in respect of his or its holding of Securities only) with the Buyer that it is the sole legal and beneficial owner of the Securities set opposite such Seller’s name in columns (5) and (7) (inclusive) of the Master Allocation Schedule and has (and will have at Completion) the right to sell and transfer to the Buyer the full legal and beneficial interest in those Securities.

004600-0228-14943-Active.18252126.10


2.5     The Institutional Seller hereby consents to the sale and purchase of the Securities pursuant to this Agreement for the purpose of the articles of association.

3.      Consideration
3.1     The total aggregate consideration for the Securities shall be an amount equal to the Total Gross Consideration, plus any deferred consideration payable under Clause 11, and shall be apportioned as follows:
(a)     for the Preference Shares, the aggregate consideration shall be the amount of the Preference Share Consideration; and
(b)      for the Ordinary Shares, the aggregate consideration shall be the amount of the Ordinary Share Consideration plus any deferred consideration payable under Clause 11.
3.2     At Completion, the consideration shall be satisfied as follows:
(a)     subject to Clause 3.2(c), the Preference Share Consideration shall be paid in cash and apportioned between the Sellers in the amounts set opposite their respective names in column (6) of the Master Allocation Schedule;
(b)     subject to Clause 3.2(c), the Ordinary Share Consideration shall be paid in cash and apportioned between the Sellers in the amounts set opposite their respective names in column (8) of the Master Allocation Schedule, subject to the deduction of each Seller’s Proportionate Share of the Approved Shareholder Adviser Fees;
(c)     the Buyer shall be entitled to deduct from the aggregate consideration payable to each Seller that Seller’s Proportionate Share of the Escrow Amount (shown against that Seller’s name in column (11) of the Master Allocation Schedule) with such deduction being deducted first from the Seller’s share of the Preference Share Consideration and then (if at all) from the Seller’s share of the Ordinary Share Consideration and the Buyer shall pay the Escrow Amount to the Escrow Account;
(d)     an amount equal to the Approved Shareholder Adviser Fees shall be paid to the Institutional Seller to settle payment of the Approved Shareholder Adviser Fees on behalf of itself and other relevant Sellers (and not as additional consideration payable to the Institutional Seller); and
(e)     the deferred consideration, if payable, shall be satisfied in accordance with Clause 11.
3.3     The Institutional Seller and the Senior Management Sellers’ Representative shall update the Master Allocation Schedule as of the Completion Date to show the actual amounts of the Total Gross Consideration, the actual amounts of the Preference Share Consideration, and the actual amounts of the Ordinary Share Consideration, less the Proportionate Share of the Approved Shareholder Adviser Fees and the Escrow Amount, to which each Seller is entitled and shall deliver a copy to the Buyer no later than five Business Days prior to the Completion Date.
3.4     Each of the Sellers agrees that the Master Allocation Schedule, including the version updated in accordance with Clause 3.3, is binding on him or it in accordance with this Agreement.
3.5     The Master Allocation Schedule, including the version updated in accordance with Clause 3.3, shall be retained by the Buyer, the Institutional Seller and the Senior Management Sellers’ Representative and not distributed to the other Sellers and each Seller (other than the Institutional Seller and the Senior Management Sellers’ Representative) waives any right to receive a copy of the Master Allocation Schedule provided that each Seller shall be entitled to: (i) receive a copy of and disclose the Master Allocation Schedule as required by Law; and (ii) receive a certificate in the agreed form from the Senior Management Sellers’ Representative certifying the Total Gross Consideration, the Preference Share Consideration, the Ordinary Share Consideration, the Escrow Amount, the Approved Shareholder Adviser Fees and his Proportionate Share thereof and that Seller’s individual entitlement to net proceeds all as extracted from the Master Allocation Schedule (the “ Individual Entitlement Certificate ”).

4.      Locked Box

004600-0228-14943-Active.18252126.10


4.1     Each of the Sellers (in respect of itself only) severally warrants, covenants and undertakes to the Buyer that in the period from (and excluding) the Locked Box Date up to (and including) the Completion Date (save to the extent comprising a Permitted Leakage):
4.1.2     no dividend or distribution of profits or assets or other payment of any nature (including, without limitation, return of capital, redemption monies or management, monitoring, advisory fees or director’s fees), whether in cash or in specie and whether out of profits or capital, has been paid or declared or made or will be paid or declared or made by a Group Company to or in favour of that Seller or any Connected Person of that Seller;
4.1.3     no amounts owed to a Group Company by that Seller or any Connected Person of that Seller have been or will be waived, forgiven or released (in whole or in part) and no claim of any Group Company outstanding against that Seller or any Connected Person of that Seller has been or will be released or waived;
4.1.4     no assets, rights or other benefits have been or will be transferred or surrendered by a Group Company to or for the benefit of or in favour of that Seller or any Connected Person of that Seller or acquired by a Group Company from that Seller or any Connected Person of that Seller;
4.1.5     no liabilities (contingent or otherwise) have been or will be assumed, indemnified or incurred (or any indemnity given in respect thereof) by any Group Company for the benefit of or on behalf of or in favour of that Seller or any Connected Person of that Seller (including but not limited to the giving of guarantees);
4.1.6     no Encumbrance has been or will be created over any of the assets of any Group Company in favour of or on behalf of or for the benefit of that Seller or any Connected Person of that Seller;
4.1.7     no other payment has been, or will be, made to or for the benefit of that Seller or any Connected Person of that Seller by a Group Company;
4.1.8     no agreement or arrangement relating to any of the matters referred to in Clauses 4.1.1 to 4.1.6 has been or will be entered into, or be offered to be entered into, by any Group Company for the benefit of that Seller or any Connected Person of that Seller; and
4.1.9     no costs or expenses relating to the sale of the Securities or to the other transactions contemplated by the Transaction Documents, or any transaction or exit or change of control bonuses or similar payments to any Employee, or any brokerage, finder’s or other fees or commissions, in each case payable as a result of the completion of the sale of the Securities (to any person) or of the other transactions contemplated by the Transaction Documents (including advisory, management, transaction, service and other fees and expenses payable to any person) have been paid or incurred, or have been agreed to be paid or incurred, by any Group Company (it being acknowledged that remuneration in the ordinary course pursuant to employment contracts in place at the date hereof or adopted by a Group Company without there being a breach of Clauses 7.1 or 7.2 and bonus payments and commissions linked to the performance of a Group Company or the Group or individual performance of an Employee, in the case of the Senior Management Sellers, as set out the Business Warranties Disclosure Exhibit and, in the case of other Employees, in the ordinary course of business consistent with past practice, is not covered by this Clause 4.1.8).
4.2     Subject to Clause 4.3 below, in the event of a breach of Clause 4.1, the relevant Seller shall repay to the Buyer, to the extent possible by way of a reduction in the consideration paid or to be paid for the Securities sold by that Seller, on a euro for euro basis, an amount equal to the amount in respect of any such breach of Clause 4.1 calculated in accordance with Clause 4.3 below. Save in the case of fraud or fraudulent misrepresentation, the Buyer shall have no remedy for a breach of Clause 4.1 except pursuant to this Clause 4.2 and Clause 4.5. In the case of a breach of Clause 4.1.8, the liability of the Sellers shall be apportioned amongst them so that they are only liable for their Proportionate Share except (and without prejudice to any claim a Buyer may have against each Seller for its or his Proportionate Share): (i) if the Senior Management Sellers’ Representative can prove that the Institutional Seller approved a payment of the type referred to in Clause 4.1.8 without the agreement of any other Seller who is a director of a Group Company, in which case the Institutional Seller shall reimburse the Senior Management Sellers for sums paid by them due to a breach of Clause 4.1.8 in respect of such a payment, or (ii) if the Institutional Seller can prove that a payment of the type referred to in Clause 4.1.8 was made or agreed to be made without the agreement of the Institutional Seller, in which case the Senior Management Sellers shall reimburse the Institutional Seller for sums paid by it due to a breach of Clause 4.1.8 in respect of such payment.

004600-0228-14943-Active.18252126.10


4.3     Where an amount is required to be repaid to the Buyer under Clause 4.2 above, in calculating the amount payable, there shall be taken into account the amount of any Taxation paid or that will become payable by any Group Company to the extent attributable to any such breach (or the matter giving rise to such breach) so that the amount payable shall be increased by the amount of any such Taxation, provided that this increase will only become payable by the relevant Seller on the date which is five Business Days before the last day on which the relevant Taxation may, by law, be paid without incurring any penalty, fine, surcharge, interest charges, costs or similar imposition.
4.4     The Buyer shall reimburse the relevant Seller who has made any payment pursuant to Clause 4.2 above an amount equal to the amount by which any liability to Taxation of any Group Company is actually reduced or extinguished as a result of the matter giving rise to such breach (the “ Available Tax Saving ”) (not exceeding the payment made by the relevant Seller or Sellers) five Business Days following the date the Available Tax Saving is used to reduce liability to pay Taxation. Where the matter giving rise to such breach relates to third party costs, any part of that amount for which credit or payment is obtained from a Tax Authority as input value added tax shall be treated as an Available Tax Saving. The Buyer shall use reasonable endeavours to obtain the Available Tax Saving.
4.5     To the extent that any amount under Clause 4.2 is agreed in writing by the Institutional Seller and the Senior Management Sellers’ Representative prior to Completion to be payable to the Buyer, this amount shall be set off against that part of the Total Gross Consideration otherwise due to that Seller and the Buyer is irrevocably authorised to deduct such amount from the consideration to be paid at Completion in accordance with Clause 8.2.1.
4.6     For the purposes only of Clause 4, the term “ Connected Person ” shall also include an investor in a Fund, and a portfolio company of a Fund, where the Fund is an Affiliate of the Institutional Seller.
4.7     No Seller is liable to make a payment under Clause 4.2 unless Completion has occurred and unless the Buyer has notified that Seller in writing of the breach of Clause 4.1, stating in reasonable detail (as is then known to the Buyer) the nature of the breach and the amount claimed, on or before the date falling six months after the Completion Date, except in the case of the payment of an adviser fee constituting a breach of Clause 4.1.8 where the invoice is received after the expiry of such six month period in which case such notification shall be made by the Buyer on or before the date falling two months after the date of receipt of the relevant invoice.
4.8     The parties acknowledge that the payment of €700,000 to Luca Zacchetti as a result of (i) his resignation due to a material reduction of the powers granted to him as Chief Executive Officer; (ii) revocation of his office, without cause; (iii) failure to reappoint him as director and as Chief Executive Officer with the same powers previously granted upon the expiry of the board of directors or early termination; or (iv) revocation of the resolution approving his indemnity without his consent, pursuant to the resolution of the Board of Directors of Rhiag IAP Italia S.p.A. dated 16 December 2013 (as confirmed by resolution of the same Board of Directors dated 24 March 2014) (which resolutions have been disclosed to the Buyer) shall not constitute a claim under this Clause 4.

5.      Conditions
5.1     Completion is conditional on:
5.1.1      the approval of the Transaction by the Competent Antitrust Authorities required under the Applicable Antitrust Laws or expiry of the relevant waiting periods without the Transaction being prohibited by the Competent Antitrust Authorities.. The Transaction shall be deemed to have been approved by a Competent Antitrust Authority if the Transaction is cleared subject to obligations or conditions or commitments or other agreements required by the Competent Antitrust Authority; and
5.1.2     no Material Adverse Change having occurred between the date of this Agreement and the date on which the condition in Clause 5.1.1 is satisfied or waived (the “ MAC Condition ”). The MAC Condition may be jointly waived by the Institutional Seller, the Senior Management Sellers’ Representative and the Buyer and will be deemed to have been waived if written notice from the Buyer seeking to invoke the condition is not served on the Institutional Seller and the Senior Management Sellers’ Representative on or before the date on which the condition in Clause 5.1.1 is satisfied or waived.

004600-0228-14943-Active.18252126.10


5.2     The Buyer shall, at its own cost, use best endeavours to achieve satisfaction of the condition set out in Clause 5.1.1 as soon as possible and in any case before 11:59 p.m. on the Long Stop Date. Such best endeavours shall include:
5.2.1     within twenty-five Business Days (provided the Sellers have during that time complied with Clause 5.3 below) following the date of this Agreement, filing with any Competent Antitrust Authority the notifications required for the Transaction under the Applicable Antitrust Laws, which form(s) shall be in compliance with the requirements of the Applicable Antitrust Laws, provided that where a filing to any Competent Antitrust Authority is subject to a pre-notification process, the above obligation shall apply to the submission of a draft;
5.2.2     using best endeavours to obtain the approvals referred to in Clause 5.1. For the purposes of this Clause 5.2.2, the “best endeavours” of the Buyer shall include, where applicable and necessary to obtain a clearance decision, promptly proposing, negotiating, offering, agreeing to commit and effecting, by any means including hold separate order, decision or as otherwise required by any Governmental Entity, the sale, divestiture or disposition of such assets, categories, portions or parts of assets or businesses of the Buyer or the Buyer’s Group or, effective as of Completion, such assets of the Group, or otherwise offering to take or committing to take any action which the Buyer is capable of taking and, if the offer is accepted, taking or committing to take such action that limits the Buyer's or the Buyer’s Group’s or, effective as of Completion, any member of the Group’s freedom of action with respect to, or its ability to retain, any of the businesses, services or assets of the Buyer or the Buyer’s Group or any or all of the assets of the Group, to avoid a prohibition decision. For the avoidance of doubt, the Buyer shall, consistent with its obligations under this Clause 5.2.2, take any and all actions necessary to ensure that no order or decision under any antitrust or competition law or regulation would preclude consummation of the Transaction by the Long Stop Date;
5.2.3     progressing the submissions, notifications and filings referred to in Clauses 5.2.1 and 5.2.2 with all diligence and promptly providing all information which is requested or required by any Governmental Entity in connection with such submission, notification and filings;
5.2.4     promptly providing the Institutional Seller and the Senior Management Sellers’ Representative and their advisers with draft copies of all submissions to any such Governmental Entity relating to any consent, approval or action in respect of the Transaction, giving the Institutional Seller and the Senior Management Sellers’ Representative (or their advisers) reasonable advance notice of any draft submissions, allowing the Institutional Seller and the Senior Management Sellers’ Representative (and their advisers) the opportunity to review any material written communications before submission (provided that any such review shall not unreasonably cause the submission to be delayed) and taking into account any reasonable comments of the Institutional Seller or the Senior Management Sellers’ Representative (or their advisers) and making such amendments to such communications as the Institutional Seller or the Senior Management Sellers’ Representative may reasonably request and, so far as practicable, and to the extent permitted by the relevant Competent Antitrust Authority, notifying the Institutional Seller and the Senior Management Sellers’ Representative prior to all other communications (including telephone calls and meetings) with any Governmental Entity, allowing the Institutional Seller and the Senior Management Sellers’ Representative the opportunity to participate in any such calls and meetings, subject to the Buyer’s reasonable designation of any competitively sensitive or confidential business material as “outside counsel only” and such materials and information contained therein to be given only to the outside legal counsel of the recipient and not disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the Buyer or its advisers;
5.2.5     promptly notifying the Institutional Seller and the Senior Management Sellers’ Representative of any communication (whether written or oral) received from any Governmental Entity, subject to the Buyer’s reasonable designation of any competitively sensitive or confidential business material as “outside counsel only” and such materials and information contained therein to be given only to the outside legal counsel of the recipient and not disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the Buyer or its advisers;
5.2.6     to the extent the Institutional Seller and the Senior Management Sellers’ Representative (or either of them) or their advisers are prohibited from participating or are unable to participate or choose(s) not to participate in the communications described in Clause 5.2.3 and/or 5.2.4, promptly notifying the Institutional Seller and the Senior Management Sellers’ Representative (and providing copies or, in the case of non-written communications, details) of any communications from any such Governmental Entity relating to any such consent, approval or action, subject to the Buyer’s reasonable designation of any competitively sensitive or confidential business material as “outside counsel only” and such materials and information contained therein to be given only to the outside legal counsel of the recipient and not disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the Buyer or its advisers;

004600-0228-14943-Active.18252126.10


5.2.7     promptly providing the Institutional Seller and the Senior Management Sellers’ Representative (or their advisers) with copies of all such submissions, notifications, filings and other communications in the form submitted or sent, subject to the Buyer's reasonable designation of any competitively sensitive or confidential business material as “outside counsel only” and such materials and information contained therein to be given only to the outside legal counsel of the recipient and not disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the Buyer or its advisers; and
5.2.8     upon the request of the Institutional Seller or the Senior Management Sellers’ Representative, fully informing the Institutional Seller and the Senior Management Sellers’ Representative (or their advisers) as to the progress of any notifications and filings to any such Governmental Entity with a view to obtaining clearance from such Governmental Entity at the earliest reasonable opportunity.
5.3     The Sellers shall use best endeavours to provide the Buyer with all information in its possession reasonably requested by the Buyer to assist it to achieve satisfaction of the condition set out in Clause 5.1.1 and to assist the Buyer with any subsequent queries from a Competent Antitrust Authority in connection with the Transaction including in relation to requests to attend meetings with any Competent Antitrust Authority.
5.4     If, at any time, the Buyer becomes aware of a fact or circumstance that is reasonably likely to prevent the condition in Clause 5.1.1 being satisfied, it shall promptly inform the Institutional Seller and the Senior Management Sellers’ Representative of the matter.
5.5     The Guarantor undertakes not to (and to procure that no member of the Buyer’s Group shall) enter into any transaction or any agreement to effect any transaction (including any merger or acquisition) or of any other nature after the date of this Agreement that might reasonably be expected to make it more difficult, or to materially increase the time required, to achieve satisfaction of the condition set out in Clause 5.1.1 or to otherwise delay, impede or prejudice Completion or the timing of Completion.
5.6     If the condition in Clause 5.1.1 has not been fulfilled by 11:59 p.m. on the Long Stop Date, this Agreement shall automatically terminate without the need for any party to serve notice on the others.
5.7     Each party's further rights and obligations cease immediately on termination except in respect of Clauses 14 to 29 (inclusive) (and the applicable definitions from, and interpretation set out in, Clause 1.1 and Clause 1.2) which will continue in full force and effect, but termination does not affect a party's accrued rights and obligations at the date of termination.

6.      No Frustrating Action
Between the execution of this Agreement and the consummation of the Transaction, none of the Sellers shall enter into (and shall take such action within its or his power to ensure that no member of the Group enters into) any other agreement or arrangement which may in any way delay, impede or prejudice Completion or the timing of Completion.

7.      Pre-Completion Undertakings
7.1     Between the execution of this Agreement and the Completion Date:
7.1.1     the Institutional Seller and each Senior Management Seller severally agrees that it shall not (where applicable) without the prior written approval of the Buyer exercise any voting rights over the Securities held by it to approve any of the numbered matters specified in Schedule 3 save to the extent that such action is Permitted Leakage or is expressly provided for in the Transaction Documents; and
7.1.2     each Senior Management Seller severally undertakes to the Buyer that he shall, in each case to the extent that he is reasonably able and legally permitted or entitled to do so by exercising his rights as a shareholder, director (after taking into account any applicable fiduciary duties) and/or employee (as applicable): (i) in each case save to the extent that such action is Permitted Leakage or is expressly provided for in the Transaction Documents, procure that each of the Group Companies does

004600-0228-14943-Active.18252126.10


not take or agree to take any of the numbered actions specified in Schedule 3; and (ii) procure that each of the Group Companies will carry on its business in the usual and ordinary course of business; and
7.1.3     the Institutional Seller undertakes to the Buyer that it will not exercise its voting rights as a shareholder, or if requested give any consent under any investment or shareholder agreement affecting the Company, to approve any of the matters specified in Schedule 3 save to the extent that such action is Permitted Leakage or is expressly provided for in the Transaction Documents.
7.2     Clause 7.1 does not apply in respect of and shall not operate so as to restrict or prevent:
7.2.1     the completion or performance of actions which are necessary to discharge any obligations undertaken pursuant to any legal or regulatory obligation in accordance with and pursuant to any contract, arrangement, licence or consent in the form disclosed in the Data Room prior to the date of this Agreement and entered into by or relating to any member of the Group in the usual and ordinary course of business prior to the date of this Agreement (or, in the case of a licence or consent, issued or granted);
7.2.2     any action undertaken or omitted at the written request or with the written consent of the Buyer (and for this purpose, the written consent of or consent by email from either of John Quinn or Walter Hanley shall constitute consent of the Buyer);
7.2.3     any action set out in Annex 7 to the Business Warranties Disclosure Exhibit;
7.2.4     any matter provided for or action required to give effect to this Agreement, any Transaction Document or the Transaction; or
7.2.5     any action required by Law.
7.3     Between the execution of this Agreement and Completion, the Senior Management Sellers shall:
7.3.1     provide the Buyer on a monthly basis with copies of the consolidated management accounts of Rhiag Bondco S.p.A., no later than three Business Days following the date on which they become available, in a format approved by legal counsel; and
7.3.2     upon the reasonable request of the Buyer, arrange for senior members of the management team of the Company to meet the Buyer or any person authorised by the Buyer, provided that the Buyer gives notice of no less than five Business Days of any meeting request (such notice not to be given prior to 15 days after the date of this Agreement). Such meetings shall take place no more than once per month and the Buyer shall not otherwise interfere with the ordinary operations of the business of the Group Companies. Such meetings will have an agenda approved by legal counsel for the Senior Management Sellers and for the Buyer and circulated to participants at least two Business Days in advance and minutes will be taken during such meetings,
provided that the Guarantor agrees that it and its Subsidiaries shall not trade in the Group’s publicly traded bonds.
7.4     The Institutional Seller shall consult with the Senior Management Sellers’ Representative in connection with the preparation of the final Approved Company Adviser Fee Schedule and the final Approved Shareholder Adviser Fee Schedule and shall provide the Senior Management Sellers’ Representative with final versions before they are delivered under Clauses 7.5 and 7.6. If the total aggregate level of fees in the final Approved Company Adviser Fee Schedule and the final Approved Shareholder Adviser Fee Schedule, taken together, exceeds the total aggregate level of fees shown in the estimate of Approved Company Adviser Fee Schedule and the estimate of Approved Shareholder Adviser Fee Schedule, taken together, circulated to the Senior Management Sellers’ legal adviser in advance of execution of this Agreement and in each case including all VAT and similar taxes and disbursements, by more than 10%, the final Approved Company Adviser Fee Schedule and the final Approved Shareholder Adviser Fee Schedule shall require the consent of the Senior Management Sellers’ Representative (such consent not to be unreasonably withheld, delayed or made subject to conditions). If the Senior Management Sellers’ Representative is entitled to withhold consent and does so, the final Approved Company Adviser Fee Schedule and the final Approved Shareholder Adviser Fee Schedule shall be adjusted so that the total aggregate increase over the estimates is 10%.

004600-0228-14943-Active.18252126.10


7.5     The Institutional Seller shall deliver to the Buyer and the Senior Management Sellers’ Representative the Approved Company Adviser Fee Schedule no later than 11:00 a.m. on the fifth Business Day immediately preceding the Completion Date.
7.6     The Institutional Seller shall deliver to the Buyer and the Senior Management Sellers’ Representative the Approved Shareholder Adviser Fee Schedule no later than 11:00 a.m. on the fifth Business Day immediately preceding the Completion Date.
7.7     Between the date of this Agreement and the Completion Date:
7.7.1     the Sellers undertake that they shall, and shall procure that each relevant Group Company shall serve the Facility Agent with a prepayment and cancellation notice in accordance with the terms of the Revolving Credit Facility Agreement in respect of the prepayment and/or cancellation on the Completion Date of the External Financing provided under the Revolving Credit Facility Agreement; and
7.7.2     if requested by the Buyer, the Sellers shall procure that Rhino Bondco S.p.A. furnishes an officer’s certificate meeting the requirements of Section 3.01 of the Senior Notes Indenture to the Trustee together with a notice to noteholders in respect of the redemption of some or all the outstanding notes under the Senior Notes Indenture on the Completion Date provided that Rhino Bondco S.p.A. shall not be required to furnish any such certificate or notices less than 10 days or more than 60 days before the expected date for Completion.
7.8     In the period prior to Completion, the Sellers shall take such action within their power as the Buyer may reasonably request to merge a Subsidiary into its immediate parent company or a new parent company for such purpose (provided that the affected Group Companies are companies incorporated in the same jurisdiction, any consent under the External Financing is obtained and the Buyer confirms that it has received advice for the benefit of the Group that there is no material adverse Tax consequence to the Group or any Group Company). The Sellers shall obtain an estimate of the legal expenses to be incurred in effecting any such merger or mergers and such costs up to an aggregate maximum of €15,000 plus VAT shall be included in the Company Adviser Fee Schedule.

8.      Completion
8.1     Completion shall take place at the offices of Simpson Thacher & Bartlett LLP, CityPoint, One Ropemaker Street, London EC2Y 9HU on the Completion Date (or on such other date or at such other place as the Institutional Seller and the Buyer may agree).
8.2     At Completion, each Seller and the Guarantor shall (or shall procure that the Buyer shall) do all those things respectively required of it or him in Schedule 2 and the Guarantor shall (or shall procure that the Buyer shall):
8.2.1     pay the consideration as described by Clause 3 by transfer of funds for same day value to such account as the relevant Seller directs;
8.2.2     pay the Escrow Amount to the Escrow Account by transfer of funds for same day value;
8.2.3     subject to the Group Company receiving an invoice, procure that a Group Company shall pay to the relevant Adviser to such account as such Adviser directs that part of the Approved Company Adviser Fees payable to that Adviser (and expressed to be “Not Paid” as at Completion).
8.2.4     It is acknowledged that any sum payable under Clause 8.2.3 is not consideration for any Securities but is to ensure that the Advisers are paid for services provided.
8.2.5     If an Adviser whose fees are included in the Approved Company Adviser Fee Schedule is not paid at Completion, the Guarantor shall (or shall procure that the Buyer shall), forthwith on demand from the Institutional Seller (which must be accompanied by a copy of the relevant adviser invoice), pay an amount equal to the sum payable to the Adviser to the Institutional Seller to enable it to pass on such sums to the relevant Adviser to discharge the obligation of the relevant Group Company or the relevant Seller or Sellers as the case may be in respect of such fees.

004600-0228-14943-Active.18252126.10


8.2.6     If there is any “Contingency” in the Approved Company Adviser Fee Schedule remaining after the operation of Clause 8.2.3 above and not required by a Group Company to pay an Adviser within one month of the Completion Date, that amount shall be paid by the Guarantor (or the Guarantor shall procure the payment by the Buyer) by transfer of funds for same day value on the expiry of the one month following the Completion Date to such account as the Institutional Seller directs to be distributed amongst the Sellers pro rata to their Proportionate Share as additional consideration, provided that the Buyer shall have no obligation as to the distribution of such amount as among such Sellers and payment to the relevant account shall constitute a good discharge of Buyer’s obligations as regards the payment required by this Clause 8.2.6.
8.3     The parties are not obliged to complete the sale and purchase of the Securities pursuant to this Agreement unless:
8.3.1     both the Guarantor and each of the Sellers comply with all their obligations under this Clause 8 and Schedule 2 (which shall be deemed to occur simultaneously); and
8.3.2     the sale and purchase of all the Securities are completed simultaneously in accordance with this Agreement.
8.4     Subject to the payment of the Total Gross Consideration, and without prejudice to any employment rights of continuing employees of the Group and/or the rights of any party under, or for breach of, the Transaction Documents and payment under the arrangements referred to in Clause 4.8, Clause 8.9 and Paragraph (9) of Schedule 4 and save for any claims arising due to fraud or fraudulent misrepresentation, each Seller confirms that (i) it and its Affiliates shall have no claim whatsoever outstanding after Completion, to the extent arising from any act, omission or state of facts taken or existing on or prior to Completion, against any Group Company or any of the past, present or future directors, officers, employees, Affiliates, or successors or assigns of any Group Company and (ii) no agreement or arrangement is or shall be outstanding at Completion under which any Group Company or any such person has or could have any obligation of any kind to it, any of its Affiliates or their respective successors and assigns other than to any other Group Company and each Seller shall procure that any of its Affiliates that are a party to such agreements agree to their termination with effect as of Completion. To the extent that any such claim, liability or obligation exists or may exist, the relevant Seller irrevocably and unconditionally waives or shall, on or before Completion, procure the irrevocable and unconditional waiver of such claim or obligation and irrevocably and unconditionally releases or shall, on or before Completion, procure the unconditional and irrevocable release of each Group Company and any such other person from any liability whatsoever in respect of such claim or obligation.
8.5     If Completion does not take place on the scheduled Completion Date because a party fails to comply with any of its obligations under this Clause 8 or Schedule 2 (whether such failure amounts to a repudiatory breach or not), the Guarantor (in the case of a default by any Seller) or the Institutional Seller (in the case of a default by the Guarantor) may by notice to the defaulting party elect to:
8.5.1     proceed to Completion to the extent reasonably practicable (without limiting its rights under this Agreement); or
8.5.2     postpone Completion to a date not more than 10 Business Days after the scheduled Completion Date.
8.6     If a party postpones Completion to another date in accordance with Clause 8.5.2, the provisions of this Agreement apply as if that other date is the scheduled Completion Date.
8.7     If Completion does not take place on the postponed Completion Date because a party fails to comply with any of its obligations under this Clause 8 or Schedule 2 (whether such failure amounts to a repudiatory breach or not), the Guarantor (in the case of a default by any Seller) or the Institutional Seller (in the case of a default by the Guarantor) may by notice to the defaulting party exercise either of the rights set forth in Clause 8.5 or terminate this Agreement immediately upon written notice to the defaulting party, provided that the Guarantor shall not be entitled to terminate this Agreement pursuant to this Clause 8.7 if either the Guarantor or the Buyer is then in material breach of any of its covenants contained herein and the Institutional Seller shall not be entitled to terminate this Agreement pursuant to this Clause 8.7 if any Seller is then in material breach of any of its covenants contained herein.
8.8     If a party terminates this Agreement pursuant to Clause 8.7, each party’s further rights and obligations cease immediately on termination except in respect of Clauses 14 to 29 (inclusive) (and the applicable definitions from, and

004600-0228-14943-Active.18252126.10


interpretation set out in, Clause 1.1 and Clause 1.2) which will continue in full force and effect and except that termination does not affect a party’s accrued rights and obligations at the date of termination.
8.9     Notwithstanding any other provision, the Buyer agrees that any Seller who is a director or manager of any Group Company and/or an Employee (and all other Employees) shall continue to benefit from and be entitled to awards under and in accordance with the long term cash incentive plan in force at the date of this Agreement (as may be amended from time to time from the date of this Agreement with the written consent of the Buyer) and to any contractual entitlement to variable remuneration or bonus payments earned or agreed upon as at the date of this Agreement and to participate under and in accordance with and benefit from performance related and similar employment based bonus payments and commissions linked to the performance of a Group Company or the Group or individual performance of an Employee, in the case of the Senior Management Sellers, as set out in the Business Warranties Disclosure Exhibit and, in the case of other Employees, in the ordinary course of business consistent with past practice, including the bonus scheme in respect of the current financial year under which bonuses are payable upon reaching the forecasted results for the year ended 31 December 2015.

9.      The Sellers’ Warranties and Undertakings
9.1     Each Seller severally warrants to the Buyer that at the date of this Agreement and as at Completion:
9.1.7     that Seller is and will be, at Completion, the sole registered holder of the Securities shown opposite its name in the Master Allocation Schedule and shall be entitled to sell and transfer (or cause the sale and transfer of) the full legal and beneficial ownership of the Securities shown opposite its name in the Master Allocation Schedule to the Buyer free from Encumbrances, and with all rights attaching thereto at Completion and thereafter;
9.1.8     that Seller is duly incorporated (where applicable) and that Seller has the full right, power and authority, and has taken all action necessary, to authorise, execute, deliver and perform its obligations under this Agreement and the Transaction Documents to be executed by that Seller;
9.1.9     that Seller’s obligations under this Agreement and the Transaction Documents are, or when the relevant document is executed will be, legal, valid and enforceable obligations in respect of that Seller in accordance with their respective terms;
9.1.10     the execution and delivery of, and the performance by that Seller of its obligations under this Agreement and the Transaction Documents, and the consummation of the transactions contemplated under such documents, will not and is not likely to:
(a)     conflict with or result in a breach of any provision of the memorandum or articles of association or by-laws or equivalent constitutional documents of that Seller;
(b)     result in a breach, violation or infringement of, or constitute a default under, or give rise to the creation of any Encumbrance on, any instrument to which that Seller is a party or by which that Seller is bound and which is or is reasonably likely to be material in the context of the transactions contemplated by this Agreement;
(c)     result in a breach of any Law by which that Seller is bound or submits; or
(d)     save as referred to in Clause 5.1, require that Seller to obtain any consent or approval of, or give any notice to or make any registration with, any Governmental Entity or other authority which has not been obtained;
9.1.11     that there is no action, suit, investigation or proceeding pending against, or threatened against or affecting that Seller before any court or arbitrator or any Governmental Entity or other third party which in any manner challenges or seeks to prevent the transactions contemplated by this Agreement; and
9.1.12     that Seller is not insolvent or unable to pay its debts within the meaning of any Laws relating to insolvency binding upon the Seller.
9.2     Each of:

004600-0228-14943-Active.18252126.10


9.2.3     the Senior Management Sellers warrants to the Buyer on a joint and several basis that the statements set out in Paragraphs 1 to 17 of Part II of Schedule 6 in respect of the Group Companies (other than Rhiag Group S.p.A., Rhino Midco 2 Limited, Rhino Topco 2 Limited, Rhino Holdco Limited, Rhino Bondco S.p.A. and Rhino Bidco S.p.A.) are true and accurate as at the date of this Agreement;
9.2.4     the Institutional Seller warrants to the Buyer that the statements set out in Paragraphs 1 to 17 of Part II of Schedule 6 in respect of Rhiag Group S.p.A., Rhino Midco 2 Limited, Rhino Topco 2 Limited and Rhino Holdco Limited are true and accurate as at the date of this Agreement;
9.2.5     notwithstanding the foregoing, and in respect of Rhino Bondco S.p.A. only:
(a)     the Institutional Seller warrants to the Buyer that each of the statements set out in Paragraphs 1 to 17 (other than Paragraph 3) of Part II of Schedule 6 are true and accurate as at the date of this Agreement; and
(b)     each of Mr. Carrabino and Mr. Imhof warrants to the Buyer on a joint and several basis that the statements set out in Paragraph 3 of Part II of Schedule 6 are true and accurate as at the date of this Agreement;
9.2.6     notwithstanding the foregoing, and in respect of Rhino Bidco S.p.A. only:
(a)     the Institutional Seller warrants to the Buyer that each of the statements set out in Paragraphs 1 to 17 (other than Paragraph 3) of Part II of Schedule 6 are true and accurate as at the date of this Agreement; and
(b)     each of Mr. Carrabino and Mr. Coletta warrants to the Buyer on a joint and several basis that the statements set out in Paragraph 3 of Part II of Schedule 6 are true and accurate as at the date of this Agreement;
9.2.7     the Institutional Seller warrants to the Buyer that the statements set out in Paragraph 18 of Part II of Schedule 6 are true and accurate as at the date of this Agreement.
The only recourse of the Buyer against the Sellers in respect of Warranty Claims shall be against the Escrow Account. The Buyer, for itself and as agent for each member of the Buyer's Group, (i) waives all other rights, remedies and means of enforcement against the Sellers and each of their Connected Persons in respect of Warranty Claims under or in connection with any Transaction Document which would otherwise have been available; and (ii) acknowledges that a breach or potential breach by a Senior Management Seller of any warranty is not deemed to be just cause (giusta causa) to terminate any relationship between that Senior Management Seller and any Group Company, except, in each case, for a claim against a particular Seller or Sellers for fraud or fraudulent misrepresentation. The Escrow Account shall be dealt with in accordance with Schedule 7.
9.3     Each of the Sellers undertakes to the Buyer Incorporation Director not to bring a claim against the Buyer Incorporation Director (i) in respect of payment of the consideration pursuant to Clause 3; or (ii) for breach of the Buyer’s Completion obligations pursuant to Clause 8 and, subject to:
9.3.1     delivery of the Buyer Registration Deed to the Sellers pursuant to Clause 10.5.6; and
9.3.2     the satisfaction by the Guarantor of the undertakings set out in Clause 10.6,
each of the Sellers undertakes to the Buyer Incorporation Director not to bring any claim against the Buyer Incorporation Director in relation to or arising out of this Agreement.
9.4     Notwithstanding any other provision of this Agreement and notwithstanding that certain Warranties are given by some, but not all, of the Sellers, it is acknowledged and agreed that each of the Sellers, including the Institutional Seller, shall bear its Proportionate Share of any Claim (as defined in Schedule 7) through payment being made from the Escrow Account and Schedule 7 shall apply to all Sellers accordingly.
9.5     The warranties set out in Clause 9.1 and Schedule 6 shall not in any respect be extinguished or affected by Completion.
9.6     Notwithstanding that the Buyer or the Guarantor becomes aware at any time:

004600-0228-14943-Active.18252126.10


9.6.1     that there has been a breach of any provision of this Agreement; or
9.6.2     that there may be a claim against any Seller in connection with this Agreement,
neither the Guarantor nor the Buyer shall be entitled to rescind this Agreement or, except as provided in Clause 5.6 or 8.7, treat this Agreement as terminated but (in the case of the Buyer only) shall only be entitled to claim damages in respect of such matter and, accordingly, each of the Guarantor and the Buyer waives all and any rights of rescission it may have in respect of any such matter (howsoever arising or deemed to arise), other than any such rights arising in respect of fraud or fraudulent misrepresentation.
9.7     Without prejudice to the aggregate caps on liability under Part III of Schedule 6, and save in the case of fraud or fraudulent misrepresentation, the aggregate liability of each Seller in respect of a breach of this Agreement (including breaches of Clauses 7.1 and/or 7.2) shall not in any circumstances exceed the portion of the Total Gross Consideration that such Seller is entitled to receive in respect of its or his Securities pursuant to Clauses 3.2(a) and (b) as set out in the Master Allocation Schedule before taking into account amounts to be deducted under Clause 3.2(b) in respect of Approved Shareholder Adviser Fees and paid under Clause 3.2(d).
9.8     Without prejudice to the aggregate cap on liability under Clause 9.7, save in the case of fraud or fraudulent misrepresentation or intentional breach, the aggregate liability of each Seller in respect of a breach of Clause 7.1 and 7.2 shall not in any circumstances exceed 20% of the portion of the Total Gross Consideration that such Seller is entitled to receive in respect of its or his Securities pursuant to Clauses 3.2 (a) and (b) as set out in the Master Allocation Schedule before taking into account amounts to be deducted under Clause 3.2(b) in respect of Approved Shareholder Adviser Fees and paid under Clause 3.2(d).
9.9     Save in the case of fraud or fraudulent misrepresentation, no Seller is liable in respect of a breach of: (i) Clause 7.1 and/or 7.2 unless the Buyer has notified that Seller in writing of the breach, stating in reasonable detail (as is known to the Buyer) the nature of the breach and the amount claimed, on or before the date falling six months after the Completion Date; and (ii) any of the warranties set out in Clause 9.1 unless the Buyer has notified that Seller in writing of the breach, stating in reasonable detail (as is then known to the Buyer) the nature of the breach and the amount claimed, on or before the date falling four years after the Completion Date.
9.10     No Seller shall make any claim against any other Seller on the basis that it or he may have relied on any warranty, representation or assurance made by such a person before agreeing any term of or before entering into this Agreement except pursuant to, or for breach of, this Agreement or any Transaction Document.
9.11     Save in the case of fraud or fraudulent misrepresentation, payment of a Seller’s Proportionate Share of the Escrow Amount to the Buyer in respect of a Settled Claim pursuant to the provisions of Schedule 7 shall not give rise to a right of recovery by that Seller against any other Seller.
9.12     Payment of a Seller’s Proportionate Share of the Escrow Amount to the Buyer in respect of a Settled Claim for the purpose of Schedule 7 shall be deemed to be a liability of the Seller for the purposes of Clause 9.7 and therefore any such payment shall be taken into account in determining whether or not the liability cap under Clause 9.7 has been reached.
9.13     None of the limitations contained in this Agreement shall apply to exclude or limit the liability of a Seller in respect of any claim under this Agreement to the extent it arises or is increased or which is delayed as a result of fraud or fraudulent misrepresentation by that Seller, provided that, to the extent that any liability arises or is increased or delayed as a result of fraud or fraudulent misrepresentation committed by a Seller, such liability shall be attributable to that Seller only, without any recourse towards, or joint liability of, any other Seller.
9.14     After Completion the Institutional Seller shall (at its own cost) provide such information within its possession relating to itself or its affairs on a strictly confidential basis (except that it may be disclosed to a Tax Authority on a strictly confidential basis) as the Buyer may reasonably require in the event of any Tax audit, proceedings, assessment, investigation or information request from the Italian Tax Authority in connection with the availability of  interest deductions or notional interest deductions (the latter being known as “Aiuto alla Crescita Economica - ACE”) in a Group Company or in any Tax Group in respect of the period of ownership by the Institutional Seller of the Company which includes any of these companies, including, but not limited to, details of the residence and domicile of any of the ultimate investors in the Institutional Seller recognising that the identity of the ultimate investors and their share of investments is commercially sensitive information and the Institutional

004600-0228-14943-Active.18252126.10


Seller will be able to take such steps to preserve that confidentiality whilst seeking to assist the Buyer with its dealings with the Tax Authority as outlined above including by providing information on an anonymised and/or aggregated basis so that the identity of the investor is not disclosed, and provided that the Institutional Seller will not be required to take any steps which are contrary to any confidentiality or other undertaking given to any investor.

10.      The Buyer’s Warranties and Undertakings and the Guarantor’s Warranties and Undertakings
10.1     The Buyer warrants to each Seller that as at the date of this Agreement and as at Completion:
10.1.8     subject to satisfaction of the conditions in Clause 5.1, the Buyer and each member of the Buyer’s Group has obtained or satisfied all corporate regulatory and other approvals or any other conditions necessary to execute, and perform its obligations under this Agreement and the Transaction Documents;
10.1.9     the Buyer’s obligations under this Agreement and the Transaction Documents are, or when the relevant document is executed will be, legal, valid and enforceable obligations of the Buyer in accordance with their respective terms;
10.1.10     the execution and delivery of, and the performance by the Buyer of its obligations under, this Agreement and the Transaction Documents, and the consummation of the transactions contemplated under such documents, will not, and is not likely to:
(a)     result in a breach of any provision of the memorandum or articles of association or by-laws or equivalent constitutional documents of the Buyer;
(b)     result in a breach of or constitute a default under, any instrument to which the Buyer is a party or by which the Buyer is bound and which is or is reasonably likely to be material in the context of the transactions contemplated by this Agreement;
(c)     result in a breach of any Law by which the Buyer is bound or submits; or
(d)     save as referred to in Clause 5.1, require the Buyer to obtain any consent or approval of, or give any notice to or make any registration with, any Governmental Entity or other authority which has not been obtained or made at the date hereof both on an unconditional basis and on a basis which cannot be revoked; and
10.1.11     that there is no action, suit, investigation or proceeding pending against, or threatened against or affecting it before any court or arbitrator or any Governmental Entity or other third party which in any manner challenges or seeks to prevent the transactions contemplated by this Agreement.
10.2     The Buyer warrants to each Seller that:
10.2.3     as at the date of this Agreement and at such time which is immediately prior to Completion, the Buyer is not insolvent or unable to pay its debts within the meaning of any Laws relating to insolvency binding upon the Buyer; and
10.2.4     the proceeds under the Buyer’s Financing Agreements and the Buyer’s own cash resources will be sufficient for the purchase of the Securities and the payment of all payments required to be made by the Buyer at Completion under this Agreement and to refinance all financial indebtedness due at Completion.
10.3     The Buyer confirms and undertakes to each Seller that it will not do or fail to do anything, that, in either case: adversely affects the availability or amount of financing under the Buyer’s Financing Agreements to a level that is less than the amount required to satisfy the Buyer’s obligations under this Agreement; releases any provider of financing under the Buyer’s Financing Agreements from its obligations to fund thereunder; adversely impacts its ability to draw down funds under the Buyer’s Financing Agreements; or adversely impacts its ability to enforce its rights against the other parties to the Buyer’s Financing Agreements;

004600-0228-14943-Active.18252126.10


10.3.3     it will give the Institutional Seller prompt notice of any breach or default of any of the Buyer’s Financing Agreements of which it is actually aware that would reasonably be expected to relieve any debt funding source of its obligation to fund in accordance with the relevant Buyer’s Financing Agreement; and
10.3.4     as at the date hereof, there are no other agreements between the Buyer and any other parties to the Buyer’s Financing Agreements that reduce the availability of the financing under any of the Buyer’s Financing Agreements.
10.4     The Guarantor warrants to each Seller that as at the date of this Agreement and as at Completion:
10.4.1     subject to satisfaction of the conditions in Clause 5.1, the Guarantor has obtained or satisfied all corporate regulatory and other approvals or any other conditions necessary to execute, and perform its obligations under this Agreement and the Transaction Documents;
10.4.2     the Guarantor’s obligations under this Agreement and the Transaction Documents are, or when the relevant document is executed will be, legal, valid and enforceable obligations of the Guarantor in accordance with their respective terms;
10.4.3     the execution and delivery of, and the performance by the Guarantor of its obligations under, this Agreement and the Transaction Documents, and the consummation of the transactions contemplated under such documents, will not, and is not likely to:
(c)     result in a breach of any provision of the memorandum or articles of association or by-laws or equivalent constitutional documents of the Guarantor;
(d)     result in a breach of or constitute a default under, any instrument to which the Guarantor is a party or by which the Guarantor is bound and which is or is reasonably likely to be material in the context of the transactions contemplated by this Agreement;
(e)     result in a breach of any Law by which the Guarantor is bound or submits; or
(f)     save as referred to in Clause 5.1, require the Guarantor to obtain any consent or approval of, or give any notice to or make any registration with, any Governmental Entity or other authority which has not been obtained or made at the date hereof both on an unconditional basis and on a basis which cannot be revoked; and
10.4.4     that there is no action, suit, investigation or proceeding pending against, or threatened against or affecting it before any court or arbitrator or any Governmental Entity or other third party which in any manner challenges or seeks to prevent the transactions contemplated by this Agreement.
10.5     The Guarantor unconditionally and irrevocably undertakes to each of the Sellers:  
10.5.3      to procure that the Buyer will fully and promptly perform and discharge all obligations and liabilities of the Buyer including any costs of enforcement of such obligations and liabilities (referred to in this Clause 10.5 as the " Guaranteed Obligations ") under or in respect of this Agreement;
10.5.4      that it guarantees as a continuing guarantee to the Sellers the due and punctual performance and observance by the Buyer of the Guaranteed Obligations;
10.5.5      that, if the Buyer fails to do so, it will itself forthwith perform and discharge the Guaranteed Obligations as primary obligor and indemnify the Sellers on demand against all Losses suffered or incurred by or made against the Sellers in connection with or arising out of such failure;
10.5.6     that if and each time the Buyer fails to make any payment to fulfil the Guaranteed Obligations when due, the Guarantor shall on demand (without first requiring the Sellers to first take steps against the Buyer or any other person) pay such amount;

004600-0228-14943-Active.18252126.10


10.5.7     as a separate and independent stipulation, if any of the Guaranteed Obligations may not be enforceable against the Buyer for any reason whatsoever (other than an express provision of this Agreement), the Guaranteed Obligations may be enforced against and recoverable from the Guarantor as though the same had been incurred by it;
10.5.8     immediately following the Buyer Registration Effective Date, to deliver a deed (the “ Buyer Registration Deed ”) in a form acceptable to the Institutional Seller, acting reasonably, to the Sellers confirming that the obligations of the Buyer as envisaged by Clause 10.6.2 shall, for the purposes of this Clause 10.5, constitute “Guaranteed Obligations” following the Buyer Registration Effective Date, notwithstanding that the incorporation of the Buyer had not been completed and remained subject to its registration with the Italian Companies Register as at the date of this Agreement; and
10.5.9     to pay (or to procure that the Buyer will pay) the consideration payable to the Sellers pursuant to Clause 3 and to carry out (or to procure that the Buyer carries out) all obligations due to be carried out by the Buyer prior to or at Completion pursuant to, and as set out in, this Agreement.
10.6     The Guarantor undertakes to:
10.6.1     register the Deed of Incorporation at the Italian Companies Register; and
10.6.2     procure that the Buyer (i) ratifies and approves all actions taken by the Buyer Incorporation Director; and (ii) ratifies and approves the entry by the Buyer into this Agreement; and (iii) accepts all obligations on the Buyer under this Agreement on a several basis (and not joint and several with the Buyer Incorporation Director).
10.7     The liability of the Guarantor under Clause 10.5 shall not be limited, discharged or otherwise affected by the invalidity, unenforceability or frustration of any of the Guaranteed Obligations, by any lack of capacity or lack or misuse of authority on the part of the Buyer or its officers, by the liquidation, administration or dissolution of the Buyer or the disclaimer of any of the Guaranteed Obligations, by any variation or termination of any of the Guaranteed Obligations or by any other fact or circumstance which would or might (but for this provision) limit, discharge or otherwise affect the liability of the Guarantor.
10.8     The Guarantor hereby agrees that payment or performance by the Guarantor of its Guaranteed Obligations under this Agreement may be enforced upon demand by the Sellers, such Guarantor expressly waiving to the fullest extent permitted by Law any right it may have to require the Sellers to: (i) prosecute collection or seek to enforce or resort to any remedies against the Buyer or any other guarantor of the Guaranteed Obligations; or (ii) seek to enforce or resort to any remedies with respect to any security interests, or encumbrances granted to the Buyer or any remedies with respect to any other guarantor or any other person on account of the Guaranteed Obligations or any guaranty thereof.
10.9     The obligations of the Guarantor under Clause 10.5 are continuing obligations and shall remain in full force and effect so long as any of the Guaranteed Obligations has yet to be fully performed or discharged.

11.      Tax-Related Deferred Consideration
11.1     On the date falling four years following the Completion Date (the “ Tax Cut-Off Date ”), the Buyer shall pay to each Seller its or his Proportionate Share of the amount (if any) by which the Tax Refund (whether cash refund or credit against Tax payable), actually received by the Group Companies as at the Tax Cut-Off Date exceeds the amount of the aggregate of all Crystallised Tax Claim Amounts, save to the extent that an amount representing all or part of the Tax Refund has been paid or is payable to any person (other than a Group Company) under the 2013 SPA or otherwise. No amount can be claimed under this Clause 11 from any Seller if the Crystallised Tax Claim Amount exceeds the Tax Refund.
11.2     The Buyer undertakes to the Sellers to use best endeavours to ensure that all of the Tax Refund is made available to a Group Company as soon as possible following Completion and undertakes to the Sellers that it will take no action or omit to take action, and that it will procure that no Group Company takes action or omits to take action, which prejudices the ability of a Group Company to obtain the Tax Refund in full. To this end, the Buyer shall provide to the Sellers a copy of any relevant decision or communication received from any Tax Authority that relates to any Tax Refund granted (or denied) in respect of any Group Company.
11.3     For the purposes of this Clause 11:

004600-0228-14943-Active.18252126.10


11.3.5     “ Tax Refund ” means any amount or amounts (such amounts in aggregate not exceeding €1,867,000, plus accrued interest at the applicable rate) paid by a Tax Authority and received by any Group Company in the period from the Locked Box Date and in respect of the IRES refund claim filed for the Tax periods from 2007 to 2011 on the basis of Decree Law 16/2012 (such claim being for an amount of €1,186,000, plus accrued interest) and the IRES refund claim filed for Tax period 2009 concerning an IRES overpayment on interest rate swaps (such claim being for an amount of €681,000, plus accrued interest) minus all costs incurred by the Buyer or any Group Company in pursuing such Tax Refund;
11.3.6     “ Crystallised Tax Claim Amount ” means the aggregate amounts paid by a Group Company in respect of any or all of the following Tax liabilities in the period from the Locked Box Date and on or before the Tax Cut-Off Date, plus all costs incurred by the Buyer or any Group Company in connection with any action carried out pursuant to Clause 11.4 :
(e)     Tax liability of any Group Company which arises in connection with or as a result of: (a) the loss, disallowance or clawback of any deduction for interest expenses accrued by Rhiag IAP Italia S.p.A. in any Tax periods from 2007 to 2013; or (b) the failure by Rhiag IAP Italia S.p.A. to re-charge accrued interest expenses to Lanchester SA giving rise to unreported revenues in any Tax periods from 2007 to 2013 (except to the extent that a Group Company has received a payment from the Escrow Account (as defined in the 2013 SPA) in accordance with clauses 8.4 and 8.5 of the 2013 SPA in respect of the specific Tax liability);
(f)     Tax liability of any Group Company which arises in connection with or as a result of any unpaid withholding tax due by IAP on interest expenses accrued on a deemed IBLOR loan in respect of any Tax period up to 2013 (except to the extent that a Group Company has received a payment from the Escrow Account (as defined in the 2013 SPA) in accordance with clauses 8.4 and 8.5 of the 2013 SPA in respect of the specific Tax liability);
(g)     Tax liability of any Group Company which arises in connection with or as a result of the application of the Italian transfer-pricing regime to transactions (and documentation relating to such transactions) entered into by Bertolotti S.p.A. with ELIT CZ, spol. s r.o., Elit Ukraine Ltd. and Elit Romania S.r.l. in the Tax period 2012; and
(h)     Tax liability of any Group Company which arises in connection with or as a result of any claims for interest deductions or notional interest deductions (the latter being known as “Aiuto alla Crescita Economica - ACE”) by reference to amounts invested or loaned by the Institutional Seller to a Group Company not being validly made, or otherwise being disallowed by any Tax Authority.
11.4     The Buyer undertakes to the Sellers that it will use best endeavours to dispute any Tax claim in respect of the items referred to in the above definition of Crystallised Tax Claim Amount and shall file all Tax Returns on the basis that no such Tax is payable, provided that in each case doing so is in accordance with applicable Laws.

12.      Senior Management Sellers’ Representative
The Senior Management Sellers’ Representative shall be entitled to carry out the functions expressly conferred on him by this Agreement in accordance with the provisions of Schedule 5.

13.      Post Completion Undertakings
13.1     The Buyer acknowledges that a Seller may need access from time to time after Completion to certain accounting, Tax and other records and information held by the members of the Group to the extent such records and information pertain to events occurring prior to Completion for the purpose of (i) filing his or its Tax Returns or dealing with the relevant Tax Authority in respect of such returns or (ii) complying with applicable Law or (iii) in the case of the Institutional Seller fund reporting or compliance or fund raising, and, accordingly, the Buyer agrees that it shall cause each Group Company to:
13.1.7     properly retain and maintain such records until the date that is seven years after Completion;
13.1.8     subject to entering into customary confidentiality agreements with the Group and subject to the need to preserve any applicable privilege, upon being given reasonable notice by the relevant Seller and subject to that Seller giving such undertaking as to confidentiality as the Buyer shall reasonably require, allow that Seller and its respective officers, employees,

004600-0228-14943-Active.18252126.10


agents, auditors and representatives, to (i) inspect, review and make copies of such records and information for and only to the extent necessary for the purposes described in Clause 13.1 and (ii) be given reasonable access to any employee, officer, adviser or premises of any of the Group Companies (and within five Business Days of a written request for such reasonable access), in each case, in a manner so as not to interfere with the normal business operations of the Group, during normal working hours and at the expense of the relevant Seller.
13.2     For a period of five years following Completion, the Buyer shall cause (in so far as it is able to do so) the Company and each other member of the Group to maintain “run-off” policies of directors’ and officers’ liability insurance covering each person who was a director or other officer of the Company and any other relevant member of the Group (as applicable) immediately prior to Completion in respect of claims arising from facts or events that occurred on or prior to Completion on terms that are not less advantageous to the insured parties than those contained in the policies of directors’ and officers’ liability insurance in effect immediately prior to Completion (and disclosed to the Buyer in the Data Room), provided that the cost of such “run-off” policies shall be first approved by the Institutional Seller and the Senior Management Sellers’ Representative and included in the Approved Company Adviser Fee Schedule so that it is ultimately borne by the Sellers although the Buyer shall procure that the cost is paid.
13.3     The Buyer:
13.3.3     shall procure that shareholders’ meetings of the Company, Rhiag Group S.p.A., Rhino Bondco S.p.A., Rhino Bidco S.p.A., Rhiag IAP Italia S.p.A., Bertolotti S.p.A., Rhiag Engineering S.r.l. and Era S.p.A. and such other Subsidiaries as the Institutional Seller and the Senior Management Sellers’ Representative may indicate in writing to the Buyer at least 5 Business Days prior to Completion are validly held at the Completion Date to resolve on the release (to the maximum extent allowed under applicable Law) of the Investor Directors and all other persons who are or have been directors of a Group Company and statutory auditors of the above mentioned companies and applicable Subsidiaries from any and all liabilities arising out of their activities and functions carried out as directors and/or statutory auditors, as the case may be, for the entire period of their office and until the Completion Date;
13.3.4     shall not promote, approve or pass a resolution for a responsibility action vis-à-vis the Investor Directors or any other person who is or has been a director of a Group Company and statutory auditors of the above mentioned companies and applicable Subsidiaries, for the period of their office and until the Completion Date; and
13.3.5     shall not promote any action vis-à-vis the Investor Directors or any other person who is or has been a director of a Group Company and statutory auditors of the above mentioned companies and applicable Subsidiaries, for the period of their office and until the Completion Date, in its quality of shareholder,
in each case with the exception of those directors’ or auditors’ actions or omissions due to their fraud or fraudulent misrepresentation.
13.4     The Sellers shall procure that shareholders’ meetings of the Company, Rhiag Group S.p.A., Rhino Bondco S.p.A., Rhino Bidco S.p.A., Rhiag IAP Italia S.p.A., Bertolotti S.p.A., Rhiag Engineering S.r.l. and Era S.p.A., and all Group Companies incorporated outside Italy which are direct or indirect Subsidiaries of Rhino Bondco S.p.A. for which a similar resolution at a shareholders' meeting is in compliance with or admissible under the applicable Laws, are validly convened and held on the Completion Date to resolve on the actions set forth under this Clause 13.
13.5     The Institutional Seller undertakes that it shall not at any time during the period of twelve months after the Completion Date, for itself or for or through any other person employ or engage or seek to entice away from the employment or engagement of any Group Company Messr Luca Zacchetti or Aldo Carrabino.

14.      Confidential Information
14.1     Subject to Clause 14.2 and Clause 15, each Seller undertakes to the Buyer, (and for this purpose, the Buyer is acting for itself and as agent and trustee for each Group Company), and the Buyer undertakes to each Seller, that it shall (and, in the case of the Buyer, that it will procure that each member of the Buyer’s Group shall and in the case of each Seller, that it will procure that each of its Affiliates shall) treat as confidential all information received or obtained which relates to:

004600-0228-14943-Active.18252126.10


14.1.10     the other party and, where that other party is a Seller, the Seller and its Affiliates (other than any Group Company) and where that other party is the Buyer, the Buyer’s Group;
14.1.11     the existence, provisions or the subject matter of this Agreement, any Transaction Document or the transactions contemplated thereby and any claim or potential claim thereunder;
14.1.12     the negotiations relating to this Agreement or any documents referred to herein; or
14.1.13     with respect to the undertakings of the Sellers, any other confidential information relating to the Group.
14.2     Clause 14.1 does not apply to disclosure of any such information as is referred to in Clause 14.1:
14.2.6     which is required to be disclosed by applicable Law, by a rule of a listing authority or stock exchange to which any party is subject or submits or by a Governmental Entity or Tax Authority, whether or not the requirement has the force of law, provided that the disclosure shall be made only to the extent required and, so far as is reasonably practicable, be made after consultation with the other parties and after taking into account the other parties’ reasonable requirements as to its timing, content and manner of making or dispatch;
14.2.7     to the minimum extent required for any judicial proceedings arising out of any Transaction Document;
14.2.8     to an adviser for the purposes of advising in connection with the Transaction or a Transaction Document provided that such disclosure is on a need to know basis for these purposes and is on the basis that the recipient is bound to the disclosing party by a duty of confidentiality in respect of any information so disclosed;
14.2.9     to any direct or indirect or prospective investors in any fund managed or advised by Apax Partners LLP or managed by Apax Guernsey (Holdco) PCC Limited or an Affiliate, provided that such disclosure is made for the purposes of reporting to those investors or prospective investors and is on the basis that such investors or prospective investors are bound to the disclosing party by a duty of confidentiality in respect of any information so disclosed on terms reflecting this Clause 14 or, in relation to one-on-one meetings with any prospective investor, if such disclosure is accompanied by a statement (which shall be clearly marked on any non-oral disclosure) that such disclosure is made on the understanding that the information shall remain confidential on terms reflecting this Clause 14;
14.2.10     to a director, officer or employee of the Buyer or any Seller whose function requires him to have the relevant confidential information;
14.2.11     to the auditor of any Seller or any Affiliate of any Seller;
14.2.12     to the extent that the information has been made public by, or with the consent of, the other party;
14.2.13     to any bank or financial institution (or their respective Affiliates or respective officers, directors, employees, legal counsel or other advisors of the foregoing) providing, or potentially providing, finance to the Buyer in connection with the Transaction provided that such disclosure is on a need to know basis for these purposes and is on the basis that the recipient is bound to the disclosing party by a duty of confidentiality in respect of any information so disclosed on terms reflecting this Clause 14;
14.2.14     to any member of the Buyer’s Group or to the current or prospective equity owners thereof provided that such disclosure is on the basis that the recipient is bound to the disclosing party by a duty of confidentiality in respect of any information so disclosed on terms reflecting this Clause 14; or
14.2.15     which (i) is in, or has entered into, the public domain (other than as a direct or indirect consequence of a breach of this Agreement by the disclosing party or by any of the disclosing party’s partners, members, directors, officers, employees, legal counsel or advisers, or which the disclosing party knows (or ought reasonably to have known) to have been disclosed in breach of any duty of confidentiality); or (ii) is disclosed to the disclosing party on a non-confidential basis by a third party that, as far as the disclosing party is aware, does not owe any duty of confidentiality to the other party or its Affiliates.

004600-0228-14943-Active.18252126.10


14.3     The provisions of this Clause 14 shall continue to apply after the termination of this Agreement and/or Completion without limit in time.

15.      Announcements
15.1     Subject to Clause 15.2 and except as otherwise required by Law, no party may, before or after Completion, make or send a public announcement, communication or circular concerning the Transaction unless it has first obtained the prior written consent of the Buyer, the Institutional Seller and the Senior Management Sellers’ Representative, which may not be unreasonably withheld.
15.2     Clause 15.1 does not apply to (a) any Press Release or (b) a public announcement, communication or circular:
15.2.1     if and to the extent required by applicable Law, by a rule of a listing authority or stock exchange to which any party is subject or submits or by a Governmental Entity, in each case whether or not the requirement has the force of law (including, whether or not legally required, the proposed announcement by Rhiag Group S.p.A. that it will not be proceeding with its initial public offering and admission to trading on the Milan Borsa);
15.2.2     made or sent by the Buyer after Completion to employees or to a financier, customer, client or supplier of a Group Company informing it of the Buyer’s purchase of the Securities;
15.2.3     by the Institutional Seller after Completion which refers to the Institutional Seller’s interest in Securities, the disposal of the Securities and the acquisition cost and disposal proceeds in relation to those Securities including the relationship between the two or any other matter that is consistent with the information set forth in any Press Release; or
15.2.4     by the Buyer after Completion which refers to the acquisition of the Group by the Buyer or any other matter that is consistent with the information set forth in any Press Release.
15.3     The provisions of this Clause 15 shall continue to apply after the termination of this Agreement and/or Completion without limit in time.

16.      Costs and Expenses
16.1     Except where this Agreement provides otherwise, each party shall pay its own costs relating to the negotiation, preparation, execution and performance by it of this Agreement and of each document referred to in it.
16.2     Without prejudice to Clause 16.1, the Buyer shall pay any stamp duty, transfer tax or notarial fees in any jurisdiction payable in respect of the transfer of the Securities pursuant to this Agreement.
16.3     The Buyer shall procure that a Group Company pays the Approved Company Adviser Fees in accordance with Clause 8.2.3.
16.4     The Institutional Seller shall pay the Approved Shareholder Adviser Fees to the relevant Advisers out of the sum received by it under Clause 3.2(d).

17.      Variation
A variation of this Agreement is valid only if it is in writing and signed by or on behalf of the parties and expressed to be a variation of this Agreement.


004600-0228-14943-Active.18252126.10


18.      Remedies and Waivers
18.1     No delay or omission on the part of any party to this Agreement in exercising any right, power or remedy provided by this Agreement or by Law shall impair or constitute a waiver of such right, power or remedy or an impairment of or a waiver of other rights, powers or remedies. No single or partial exercise of a right, power or remedy provided by this Agreement or by Law prevents further exercise of that right, power or remedy or, save as otherwise provided in this Agreement, the exercise of any other right, power or remedy. The rights and remedies provided under this Agreement are cumulative and are not exclusive of any rights and remedies provided by Law or otherwise.
18.2     The parties agree that a party may only waive its rights, powers, remedies and obligations under this Agreement by notice in writing of such waiver, which may be given subject to such conditions as the grantor may in its absolute discretion decide. Any such waiver (unless otherwise specified) shall only be a waiver in the particular instance and for the particular purpose for which it was given and shall not operate as a waiver of any subsequent breach.

19.      Effect of Completion
Except to the extent that they have been performed and except where this Agreement provides otherwise, the Warranties, covenants, undertakings and other obligations contained in this Agreement shall remain in full force and effect after Completion.

20.      Payments
20.1     Any payments made pursuant to this Agreement shall be effected by crediting for same day value the account specified by the relevant Seller or the Buyer (as the case may be) reasonably in advance and in sufficient detail to enable payment by telegraphic or other electronic means to be effected on the due date for payment.
20.2     If a party fails to pay a sum due from it under this Agreement on the due date of payment in accordance with the provisions of this Agreement, that party shall pay interest on the overdue sum from (and including) the due date of payment until (but excluding) the date on which its obligation to pay the sum is discharged (after as well as before judgment) at the Default Rate.
20.3     Any payment made by a Seller to the Buyer (or vice versa ) in respect of any claim for indemnity, compensation or reimbursement under this Agreement (whether as damages for breach, or otherwise, shall, to the extent possible, be deemed to reduce or increase (as applicable) the consideration paid for the Securities sold by that Seller.
20.4     All sums payable under this Agreement shall be paid free and clear of all deductions or withholdings whatsoever, save only as may be required by Law. If a payor is required by Law to make a deduction or withholding for or on account of Tax from any such payment (a “ Tax Deduction ”), that payor shall make that Tax Deduction and any payment required to be made to the relevant Tax Authority in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.
20.5     If a Tax Deduction is made pursuant to Clause 20.4 in connection with a sum paid by the Sellers pursuant to a Warranty Claim, or if any sum paid or payable by the Sellers pursuant to a Warranty Claim is or will be chargeable to Tax in the hands of the payee (ignoring any Tax reliefs available to the payee), then the Sellers shall pay such additional amount as will ensure that the total amount received, net of the Tax Deduction or the Tax chargeable on such amount as the case may be, is equal to the amount that would otherwise be payable in relation to that Warranty Claim, provided that the total aggregate amount payable taking into account any additional amount paid by the Sellers pursuant to this Clause 20.5 shall not exceed the aggregate cap on liability applicable to the relevant Warranty to which the Warranty Claim relates and any such additional payment due under this Clause 20.5 shall be funded solely from the Escrow Account without recourse to the Sellers (and for the purposes of this Clause 20.5 “paid” shall include any amounts funded from the Escrow Account).

21.      Set-Off

004600-0228-14943-Active.18252126.10


Save as otherwise provided herein, or in circumstances where the Buyer seeks to set-off the amount of a claim against the Seller (or any of them) which has been accepted in writing by the relevant Seller(s), or has been determined by a final and non-appealable court judgment or arbitral award (as the case may be), any payment to be made by any party under this Agreement or any Transaction Document shall be made in full without any set-off, restriction, condition or deduction for or on account of any counterclaim.

22.      Invalidity
22.1     Each of the provisions of this Agreement is severable. If at any time any provision of this Agreement is held to be, or to have become, illegal, invalid or unenforceable in any respect under any Law, such provision shall to that extent be deemed not to form part of this Agreement and that shall not affect or impair:
(a)     the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or
(b)     the legality, validity or enforceability under the Law of any other jurisdiction of that or any other provision of this Agreement, and provided that the fundamental relations between the parties are not materially altered,
the parties shall use all reasonable efforts to replace it in that respect with a valid and enforceable substitute provision the effect of which is as close to its intended effect as possible.

23.      Contracts (Rights of Third Parties) Act 1999
Except for those persons set out in Clauses 8.4, 9.3 and 25.3, who shall be entitled to enforce the terms of and rely on the rights granted by such respective clauses, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from the Contracts (Rights of Third Parties) Act 1999.

24.      Further Assurances
24.1     At all times after the date of this Agreement, each Seller shall (in respect of the Securities held by it only), at the cost of the Buyer, execute and do (or procure to be executed and done by any other necessary party) all such deeds, documents acts and things as may be required by Law or as the Buyer from time to time reasonably require in order to vest any of the Securities in the Buyer.
24.2     For so long after Completion as any Seller or any nominee of it remains the registered holder of any Security, it shall hold (or direct the relevant nominee to hold) that Security and any distributions, property and rights deriving from it in trust for the Buyer and shall deal with that Security and any distributions, property and rights deriving from it as the Buyer directs; in particular, the Seller shall exercise all voting rights as the Buyer directs or shall execute an instrument of proxy or other document which enables the Buyer or its representative to attend and vote at any meeting of the Company.
24.3     Notwithstanding Clause 5.1, if and to the extent Completion is permissible pursuant to Clause 5.1.2 and regulatory clearance has been obtained from (or the relevant waiting period has expired in relation to) the European Commission pursuant to Clause 5.1.1 but the Transaction has not received clearance from any other Competent Antitrust Authority, without prejudice to the Buyer’s obligations under Clause 5.2 and the Sellers’ obligations under Clause 5.3, with effect from 30 days after regulatory clearance has been obtained from (or the relevant waiting period has expired in relation to) the European Commission, the parties shall use reasonable endeavours (subject to the cost cap set out in this Clause 24.3) to put in place the necessary arrangements in relation to any Group Companies incorporated in jurisdictions still subject to regulatory review, to the effect that such Group Companies can be provisionally excluded from the consummation of the Transaction until such consummation is permitted by the Competent Antitrust Authority, and to proceed to Completion in respect of the remainder of the Group provided that such arrangements are structured without the cost to the Buyer’s Group or the Group exceeding €2,500,000 in aggregate (excluding for this purpose the payment of consideration for the Securities under this Agreement). The foregoing shall not affect the Buyer's obligation to pay the full amount of the consideration payable pursuant to Clause 3. In the event that the parties proceed to Completion pursuant to the arrangements set out in this Clause 24.3, then Clause 5.6 shall not apply.

004600-0228-14943-Active.18252126.10



25.      Entire Agreement
In this Clause 25, the following definition applies:
“ Representation ” means any representation, statement, assurance, covenant, undertaking, warranty, promise, forecast, indemnity, guarantee or commitment (whether contractual or otherwise and whether or not in writing).
25.1     This Agreement and the Transaction Documents constitute the entire agreement between the Sellers and the Buyer and the Guarantor relating to the subject matter thereof at the date hereof to the exclusion of any terms implied by Law which may be excluded by contract and supersede and extinguish any previous or contemporaneous agreement, term sheet, draft or undertaking of any nature whatsoever between the parties relating to the subject matter of this Agreement and the Transaction Documents, whether or not in writing.
25.2     The Buyer and the Guarantor acknowledge and agrees that no Seller makes any Representation as to the accuracy of the forecasts, estimates, projections, statements of intent or statements of honestly held opinion provided to the Buyer or the Guarantor (howsoever provided) on or prior to the date of this Agreement, including, without limitation, in the Data Room or in the documents provided to the Buyer or the Guarantor or its advisers in the course of the Guarantor’s due diligence exercise.
25.3     Subject to Clause 25.5, each of the Buyer and the Guarantor acknowledges and represents that it has not entered into this Agreement or any Transaction Document or any other agreement or document referred to herein in reliance on (or been induced to do so by) any Representation of any kind whatsoever (other than the warranties in Clauses 4.1 and 9.1 and Schedule 6) and, for the avoidance of doubt, acknowledges that it shall not be entitled to, and undertakes that it will not, bring any claims in relation to any Representation made (other than the warranties in Clauses 4.1 and 9.1 and Schedule 6), or information provided, by or on behalf of any Seller or any of its Affiliates (including in the case of the Institutional Seller, Apax Partners LLP and Apax Guernsey (Holdco) PCC Limited and its Affiliates), any Group Company, or any of their respective directors, officers, partners, employees, advisers or representatives (the “ Unwarranted Information ”). Accordingly, no such person shall have any liability to the Buyer or the Guarantor or any member of the Buyer’s Group, and subject to Clause 25.5, each of the Buyer and the Guarantor undertakes not to, and undertakes to procure that no member of the Buyer’s Group shall, bring any claim or action against any Seller or any such other person in respect of the Unwarranted Information, including, without limitation, in the event that such Unwarranted Information is, is alleged to be or becomes inaccurate, incomplete or misleading. For the avoidance of doubt, this Clause 25.3 is subject to Clause 25.5. For the avoidance of doubt, and except as expressly agreed otherwise in writing by the relevant adviser, the Buyer hereby acknowledges that the Sellers’ advisers will not be responsible to anyone other than the Sellers in relation to the Transaction.
25.4     So far as is permitted by Law and except in the case of fraud or fraudulent misrepresentation, each of the Sellers and the Buyer and the Guarantor agrees and acknowledges that its only right and remedy in relation to any Representation made or given in connection with this Agreement shall be for breach of the terms of this Agreement to the exclusion of all other rights and remedies (including those in tort or arising under statute).
25.5     Nothing in this Agreement shall have the effect of excluding, limiting or restricting any liability or remedy arising as a result of any fraud or fraudulent misrepresentation.

26.      Assignment
26.1     Subject to Clauses 26.2 and 26.3, none of the parties shall assign, transfer, charge, declare a trust of the benefit of or in any other way alienate any of its rights under this Agreement whether in whole or in part, save with the prior written consent of the other parties to this Agreement.
26.2     The Buyer or any member of the Buyer’s Group may charge and/or assign the benefit of this Agreement to any person providing debt financing and/or hedging facilities to the Buyer or any member of the Buyer’s Group, to any security agent or any person or persons acting as trustee, nominee or agent for any such person by way of security for the facilities being made or to be made available to the Buyer or member of the Buyer’s Group and any such person, security agent, trustee, nominee or agent may also, in the event of enforcement of such security in accordance with its terms, assign the benefit of such obligations

004600-0228-14943-Active.18252126.10


and rights to a Buyer or assignee who acquires the Company or all or part of its business from that person, security agent, trustee, nominee or agent (or receiver appointed by any of them).
26.3     The Buyer shall be entitled to assign in whole or in part the benefit of or its rights under this Agreement at any time to any member of the Buyer’s Group to whom the Buyer transfers any Securities. However, the Buyer shall procure that any such member to whom it assigns any of its rights under this Agreement shall assign such rights back to the Buyer immediately prior to it ceasing to be a member of the Buyer’s Group (failing which the relevant rights shall cease to be enforceable).
26.4     No Seller shall be under any greater obligation or liability as a result of any assignment, charging or other dealing permitted by Clause 26.2 or Clause 26.3 than if such assignment charging or other dealing had never occurred and that the amount of Loss or damage recoverable by the assignee shall not exceed the amount calculated as if that person had been originally named as the Buyer in this Agreement (and, in particular, shall not exceed the sum which would, but for such assignment, have been recoverable hereunder by the Buyer in respect of the relevant fact, matter or circumstance).

27.      Notices
27.1     A notice or other communication under or in connection with this Agreement (a “ Notice ”) shall be:
27.1.1     in writing;
27.1.2     in the English language; and
27.1.3     sent by prepaid recorded or special delivery post (or by an internationally recognised next-day courier service if sent internationally) to the party due to receive the Notice to the address set out in Clause 27.7.
27.2     Unless there is evidence that it was received earlier, a Notice is deemed given if:
27.2.1     if delivered by hand, on the date of delivery;
27.2.2     if sent by prepaid recorded or special delivery post within the same country, on the second Business Day after the date of posting; and
27.2.3     if sent by an internationally recognised next-day courier service, on the second Business Day following the date of despatch.
27.3     In proving the giving of a notice, it will be sufficient to show:
27.3.1     in the case of a notice delivered by hand, that delivery was made; or
27.3.2     in the case of a notice sent by prepaid recorded or special delivery post, that the envelope containing the notice was properly addressed and posted in accordance with Clause 27.1; or
27.3.3     in the case of recognised international courier, that the envelope containing the notice was delivered to the courier and receipt given.
27.4     Any party may from time to time notify the others of any other person or address for the receipt of notices or copy notices. Any such change shall take effect five Business Days after notice of the change is received or (if later) on the date (if any) specified in the notice as the date on which the change is to take place.
27.5     Any notice, consent or other communication given in accordance with Clause 27.1 and received after 5:30 p.m. (local time) on a Business Day, or on any day which is not a Business Day, shall for the purposes of this Agreement be regarded as received on the next Business Day.

004600-0228-14943-Active.18252126.10


27.6     The provisions of Clause 27.1 shall not apply in relation to the service of process in any legal proceedings arising out of or in connection with this Agreement.
27.7     The address referred to in Clause 27.1.3 is:
Name of party
Address
Institutional Seller
Rhino EquityCo. Limited
33 Jermyn Street
London SW1Y 6DN

For the attention of: Frank Ehmer

with copy (which shall not constitute notice) to:
Simpson Thacher & Bartlett LLP
Citypoint, One Ropemaker Street
London, EC2Y 9HU

For the attention of: Derek Baird

Senior Management Sellers
Luca Zacchetti
c/o Studio Legale Galbiati, Sacchi e Associati
Via Durini 24 2012 Milan Italy

For the attention of Luca Zacchetti

with copy (which shall not constitute notice) to:
Studio Legale Galbiati, Sacchi e Associati
Via Durini 24 20122 Milan Italy

For the attention of: Maurizio Galbiati and Aldo Sacchi

The Buyer
LKQ Corporation, 500 West Madison Street,
Suite 2800, Chicago IL 60661 USA
For the attention of: General Counsel

with copy (which shall not constitute notice) to:
K&L Gates LLP, One New Change,
London EC4M 9AF
For the attention of: Jeremy Davis

The Guarantor
LKQ Corporation, 500 West Madison Street,
Suite 2800, Chicago IL 60661 USA
For the attention of: General Counsel

with copy (which shall not constitute notice) to:
K&L Gates LLP, One New Change,
London EC4M 9AF
For the attention of: Jeremy Davis


28.      Governing Law and Jurisdiction
28.1     This Agreement and any other Transaction Documents and any non-contractual obligations arising out of or in connection with them shall, except as expressly provided otherwise, be governed by and construed in accordance with English law.
28.2     The parties irrevocably agree that the courts of England are to have exclusive jurisdiction to settle any dispute relating to, or which may arise out of or in connection with, this Agreement and the documents to be entered into pursuant to it, including a dispute regarding the existence, validity or termination of this Agreement or the consequences of its nullity and

004600-0228-14943-Active.18252126.10


that accordingly any proceedings arising out of or in connection with this Agreement and the documents to be entered into pursuant to it shall be brought in such courts.
28.3     The parties irrevocably submit to the exclusive jurisdiction of the courts of England and waive any objection to proceedings in any such court on the ground of venue or the ground that proceedings have been brought in an inconvenient forum.

29.      Counterparts
This Agreement may be executed in any number of counterparts, all of which together evidence the same agreement. A Seller and the Buyer and the Guarantor may enter into this Agreement by executing any such counterpart but this Agreement shall not be effective until all parties have executed at least one counterpart. Each counterpart shall be deemed an original and all counterparts shall together constitute a single agreement.

30.      Agent for Service
30.1     Each of the Senior Management Sellers irrevocably appoints Apax WW Nominees Limited to be its agent for the receipt of service of process in England and Wales and agrees that any claim form, notice or other document relating to any suit, action or proceeding in England and Wales arising out of or in connection with this Agreement and the documents entered into pursuant to this Agreement (a “ Process Document ”) may be effectively served on the Senior Management Sellers by service on Apax WW Nominees Limited.
30.2     Each of the Buyer and Guarantor irrevocably appoints Euro Car Parts Limited to be its agent for the receipt of service of process in England and Wales and agrees that any Process Document may be effectively served on it by service on Euro Car Parts Limited.
30.3     A Process Document shall be deemed to have been duly served pursuant to Clause 30.1 if delivered by hand or by courier to Apax WW Nominees Limited, 33 Jermyn Street, London, SW1Y 6DN and shall be deemed to have been received by Apax WW Nominees Limited if delivered by hand or by courier, at the time of delivery.
30.4     A Process Document shall be deemed to have been duly served pursuant to Clause 30.2 if delivered by hand or by courier to Euro Car Parts Limited (FAO the Head of Legal), Fulton Road, Wembley Industrial Estate, Wembley, Middlesex HA9 0TF and shall be deemed to have been received by Euro Car Parts Limited if delivered by hand or by courier, at the time of delivery.


004600-0228-14943-Active.18252126.10


IN WITNESS WHEREOF this Agreement has been executed as a deed and is delivered as a deed on the date first stated at the beginning.
EXECUTED  and DELIVERED  as a DEED  by RHINO EQUITY CO. LIMITED
 
 
 
 
 
Acting by:
 
 
 
 
 
…Hafiz Chagani…………………
 
……… /s/ Hafiz Chagani ……………
Director name
 
Director signature
 
 
 
In the presence of:
 
 
 
 
 
……Safia Karim…………
 
……… /s/ Safia Karim ………………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……202 - 1420 Parkway Blvd…
 
 
………Coquitlam B.C.………
 
 
…………V3E 3J6…………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
…Teacher……………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of LUCA ZACCHETTI
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 




004600-0228-14943-Active.18252126.10


EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of LUCA ZACCHETTI
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of WALTER COLETTA
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of ADRIANO CERUTI
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of FERDINANDO IMHOF
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 




004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of PAOLO VUILLERMIN
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of PAOLO APPENDINO
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



004600-0228-14943-Active.18252126.10



EXECUTED and DELIVERED as a DEED by ALDO CARRABINO, acting as attorney on behalf of MASSIMO DEPERTRIS
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of OLEKSANDR NIKOLENKO
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 




004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of JIRI NOVAK
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of LUKAS VYDRA
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of JOZSEF VARADI
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of ONDREJ NAVRATIL
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 




004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of ANDRE SAUTEUR
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of SALVATORE MILIGI
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of CLAUDIO FRASCOLLA
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



EXECUTED  and DELIVERED  as a DEED  by ALDO CARRABINO , acting as attorney on behalf of MARIO SGALAMBRO
 
……… /s/ Aldo Carrabino …
 
 
Signature
 
 
 
In the presence of:
 
 
 
 
 
……Matteo Marco Cremascoli....
 
…… /s/ Matteo Marco Cremascoli ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
……Via Durini 24…………
 
 
……20122 Milan…
 
 
………Italy………………………
 
 
 
 
 
Witness occupation:
 
 
 
 
 
……Lawyer………………
 
 



004600-0228-14943-Active.18252126.10



EXECUTED  and DELIVERED  as a DEED  by LKQ ITALIA S.R.L.
 
 
 
 
 
Acting by:
 
 
 
 
 
…Robert L. Wagman.......
 
… /s/ Robert L. Wagman ……
Director name
 
Director signature
 
 
 
In the presence of:
 
 
 
 
 
……Walter P. Hanley………
 
…… /s/ Walter P. Hanley ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
…500 West Madison Street………………
 
 
....Suite 2800……
 
 
…Chicago, Illinois, USA……
 
 
 
 
 
Witness occupation:
 
 
 
 
 
…Executive…………………
 
 



EXECUTED  and DELIVERED  as a DEED  by LKQ CORPORATION
 
 
 
 
 
Acting by:
 
 
 
 
 
……Robert L. Wagman………
 
… /s/ Robert L. Wagman …………………
Director name
 
Director signature
 
 
 
In the presence of:
 
 
 
 
 
……Walter P. Hanley………
 
…… /s/ Walter P. Hanley ……………
Witness name
 
Witness signature
 
 
 
Witness address:
 
 
 
 
 
…500 West Madison Street……
 
 
....Suite 2800……
 
 
…Chicago, Illinois, USA……
 
 
 
 
 
Witness occupation:
 
 
 
 
 
…Executive……………………
 
 

004600-0228-14943-Active.18252126.10




SCHEDULE 1
Information about the Senior Management Sellers

Name
Address

Luca Zacchetti







All c/o Via Vincenzo Monti 23/D, Pero (Mi) 20016


Aldo Carrabino
Walter Coletta
Adriano Ceruti
Ferdinando Imhof
Paolo Vuillermin
Paolo Appendino
Massimo Depetris
Oleksandr Nikolenko
Jiri Novak
Lukáš Vydra
József Váradi
Ondrej Navratil
Andre Sauteur
Salvatore Miligi
Claudio Frascolla
Mario Sgalambro



004600-0228-14943-Active.18252126.10


 

SCHEDULE 2 Completion Requirements
Part 1 – Sellers’ Completion Requirements
(A)
At Completion, each Seller shall deliver or make available to the Buyer:
(a)
duly executed transfer(s) in respect of the Securities referred to against such Seller’s name in the Master Allocation Schedule in favour of the Buyer, and the share certificates for those Securities (or an indemnity in a form satisfactory to the Buyer acting reasonably in the case of any certificate found to be missing);
(b)
in the case of the Institutional Seller, a letter of resignation from the Investor Directors confirming that they have no claims against any Group Company (in exchange for a waiver from the relevant Group Company of all claims against such Investor Director to the fullest extent permitted by Law);
(c)
in the case of the Senior Management Sellers, the Tax Deed, duly executed;
(d)
in the case of the Institutional Seller as evidence of the authority of the Institutional Seller:
(i)
a copy of the minutes (or an extract therefrom) of the duly held meeting of the Institutional Seller, (or duly constituted committees thereof) approving the sale of the relevant Securities and the transactions contemplated pursuant to this Agreement and authorising the execution by such Seller of this Agreement and all Transaction Documents; or
(ii)    a copy of the power of attorney conferring the authority,
in each case certified to be a true copy by a director or the secretary of the Institutional Seller;    
(e)
(f)    an irrevocable power of attorney in the agreed form given by each Seller in favour of the Buyer to enable the Buyer to exercise all voting and other rights attaching to those Securities pending registration of the Buyer as the holder of the Securities; and
(g)
the statutory books of the Company, Rhino Topco Limited and Rhino Midco 2 Limited and the libro soci of Rhiag Group S.p.A., Rhino Bondco S.p.A., Rhino Bidco S.p.A. and Rhiag IAP Italia S.p.A..
(B)
The Institutional Seller shall ensure that, immediately prior to Completion, a meeting of the board of the directors of the Company is held at which the directors:
(a)
vote in favour of the registration of the Buyer or its nominee(s) as the member(s) of the Company in respect of the Securities (subject to stamping of the relevant transfers) and, subject to Completion and stamping authorise the Company to register the transfer of the Securities into the books of the Company in the name of the Buyer and to issue a new share certificate in relation to the Securities to the Buyer;
(b)
to the extent that relevant details and consents to act are provided to the Institutional Seller at least three Business Days prior to Completion, appoint the relevant Buyer Directors, such appointments to take effect from Completion; and
(c)
accept the resignations of each Investor Director and secretary, such resignation to take effect from Completion; and
(d)
appointing such person as the Buyer may nominate as the secretary of the Company with effect from the end of the meeting.

Part 2 – Guarantor’s and Buyer’s Completion Requirements

004600-0228-14943-Active.18252126.10


At Completion the Guarantor shall (or shall procure that the Buyer shall) deliver or make available, as the case may be, to the Institutional Seller and the Senior Management Sellers’ Representative:
(a)
evidence of the authority of each person executing this Agreement and any Transaction Document on the Buyer’s behalf:
(i)
a copy of the minutes of the duly held meeting of the Buyer (or duly constituted committees thereof) approving the purchase of the Securities and the transactions contemplated pursuant to this Agreement and authorising the execution by the Buyer of this Agreement and all Transaction Documents; or
(ii)
a copy of the power of attorney conferring the authority,
in each case certified to be a true copy by a director or the secretary of the Buyer; and
(b)
evidence of the authority of each person executing this Agreement and any Transaction Document on the Guarantor’s behalf, by way of a certified extract of the minutes of the duly held meeting of the Guarantor (or duly constituted committees thereof) approving the transactions contemplated pursuant to this Agreement and authorising the execution by the Guarantor of this Agreement and all Transaction Documents.
At Completion, the Buyer shall deliver the Tax Deed, duly executed, to the Senior Management Sellers.

SCHEDULE 3
Action Pending Completion
The following are the matters referred to in Clause 7.1 and shall apply in each case in respect of any Group Company:
(1)
create, allot, issue, grant an option to subscribe for, repay, cancel or redeem any share or loan capital or agree, arrange or undertake to do any of those things in respect of any Group Company (except where the counterparty is another Group Company) or acquire, or agree to acquire, an interest in a corporate body or merge or consolidate with a corporate body or any other person, enter into any demerger, scheme of arrangement or similar transaction, enter into or form any legal partnership or joint venture or participate in any other type of corporate reconstruction, or incorporate or liquidate any subsidiary undertaking or effect any hive-up or hive-down;
(2)
acquire or dispose of, or agree to acquire or dispose of, any business or undertakings or bodies corporate or any shares in any Group Company or, other than in the ordinary course of business, assets with a book or market value exceeding €3,000,000;
(3)
make, or agree to make, capital expenditure exceeding in total €3,000,000 or incur, or agree to incur, a commitment or commitments involving capital expenditure exceeding in total €3,000,000;
(4)
declare, pay or make a dividend or distribution to any person which is not a Group Company, whether in cash or in specie and whether out of profits or capital;
(5)
terminate or amend in any material respect, or fail to comply in all material respects with, or fail to renew, any material contract which involves an annual consideration in excess of €1,000,000;
(6)
materially amend the terms and conditions of employment, including any material increase in remuneration (including pension benefits, bonuses, equity incentives, commissions and benefits in kind) of any category of Employees, save for increases in remuneration made in accordance with statutory provisions or pursuant to or contemplated under existing employment agreements;
(7)
terminate the employment of a senior employee entitled to emoluments in excess of €200,000 per annum or commence collective redundancy consultation in respect of more than 10 Employees;
(8)
amend or vary, or enter into any collective bargaining agreement with or in respect of all or any category of Employees on terms which, taken as a whole (and giving due consideration to past practice with respect to the negotiation or renegotiation of such agreements, as well as the relative bargaining position of the parties), are materially more onerous than those in force at the date of this Agreement with respect to such Employees (if any);    

004600-0228-14943-Active.18252126.10


(9)
amend, or agree to amend, the terms of its borrowing or indebtedness in the nature of borrowing or create, incur, or agree to create or incur, borrowing or indebtedness in the nature of borrowing (except for (A) trade credit in the ordinary course of trading, (B) entering into finance leases in the ordinary course of business or (C) indebtedness under or pursuant to the External Financing Documents or local lines of credit in place and on terms existing as at the date of this Agreement or terms which are more favourable to the relevant member of the Group (and any refinancing or replacement thereof));
(10)
(A) wilfully withhold a payment in respect of Tax when due for payment, save for any payment in respect of Tax that can be lawfully withheld because it is being contested in good faith by proper proceedings, (B) make a change in accounting or Tax reporting principles, methods or policies (unless so required by applicable Law) or (C) make or change any Tax election, file any amended Tax Return, deviate from past practice with respect to the preparation of Tax Returns due for filing (unless required under applicable Law), settle or compromise any proceeding with respect to any Tax claim or assessment, offer to or enter into any agreement with any Tax Authority (otherwise than in the ordinary course of business), surrender any right to claim a refund of Taxes, or take any other similar action relating to the filing of any Tax Return or the payment of any Taxes;
(11)
(A) commence, compromise, settle, withdraw or abandon any litigation or arbitration proceedings or any action, demand, claim or dispute relating to an amount exceeding €1,000,000, or (B) waive a right in relation to such litigation or arbitration proceedings, action, demand, claim or dispute;
(12)
save for any Encumbrance arising in the ordinary course of business or by operation of law or pursuant to or in connection with the External Financing Documents, create or agree to create or amend any Encumbrance over the assets (tangible or intangible), undertaking or share capital of any Group Company;
(13)
terminate, amend in a material respect or fail to renew any policy of insurance maintained at the date hereof by the Group;
(14)
sell, assign, transfer, license, abandon, fail to prosecute or otherwise dispose of, or fail to maintain, defend, pay registration fees in respect of, or diligently pursue applications for any intellectual property owned by a Group Company;
(15)
enter into any agreement or arrangement or amend the terms of any existing agreement or arrangement with a Seller or any Affiliate of a Seller;
(16)
amend the provisions of its constitutional documents;
(17)
change its accounting reference date;
(18)
incur or assume any off balance sheet liability which in the individual case exceeds the amount of €1,000,000;
(19)
amend or vary or enter into or terminate any hedging or derivative arrangements other than in the ordinary course of business; or
(20)
enter into any agency agreement involving expenditure in excess of €100,000 per year;
(21)
enter into any new services agreement, which involves the payment, on an annual basis, by any Group Company in excess of €250,000 per year, other than in the ordinary course of business (and excluding any renewal or extension of any existing services agreements); or
(22)
offer to or enter into any agreement or arrangement (whether in writing or otherwise) to do any of the foregoing or allow or permit any of the foregoing.

SCHEDULE 4
Permitted Leakage
The following payments (without duplication) made or to be made by or on behalf of any Group Company:
(1)
director or consultant fees and/or expenses or salaries or wages, emoluments and other contractual benefits payable to Employees, or consultants of any Group Company or managers or directors of any Group Company under any service or employment or consultancy agreement or by virtue of their employment or directorship in each case in the ordinary course pursuant to employment contracts in place at the date hereof or adopted by a Group Company without there being

004600-0228-14943-Active.18252126.10


a breach of Clauses 7.1 or 7.2 and bonus payments and commissions linked to the performance of a Group Company or the Group or individual performance of an Employee, in the case of the Senior Management Sellers, as set out in the Business Warranties Disclosure Exhibit and, in the case of other Employees, in the ordinary course of business consistent with past practice;
(2)
the reimbursement of all expenses incurred by the Investor Directors, in an amount not exceeding €15,000 per month;
(3)
any payment or service provided to a portfolio company of entities or funds advised by Apax Partners LLP or managed by Apax Guernsey (Holdco) PCC Limited or an Affiliate in the ordinary course of business and on arm’s length terms pursuant to contractual obligations entered into prior to 30 September 2015;
(4)
any provision of services to or for the benefit of, or other non-cash benefit received by, a Seller or his or its Connected Persons in respect of time spent and services provided by Employees or advisers in connection with the Transaction or in connection with a potential transaction the purpose of which is to realise in whole or in part the investment of the Sellers (or some of them) in the Company including an initial public offering and listing of shares in a Group Company or a new holding company of a Group Company,;
(5)
in the case of a Connected Person of the Institutional Seller, the incurring of the liability to pay, the granting of an Encumbrance in respect of that liability, and the payment of sums due under the External Financing Documents;
(6)
the incurring of the liability to pay or payment of Approved Company Adviser Fees (including amounts categorised as “Contingency”) and the entry into engagement letters with such advisers on market standard terms;
(7)
any payments specifically provided for (and to the extent provided for) and accrued (to the extent accrued) in the Locked Box Accounts;
(8)
any matter undertaken at the written request of the Buyer and acknowledged as Permitted Leakage;
(9)
the incurring of the liability to pay and the payment of the change of control bonus payment in the aggregate gross amount of €600,000 to certain Senior Management Sellers and Employees;
(10)
all costs and expenses and other actions in connection with the repayment or refinancing of External Financing, including costs and expenses to discharge Encumbrances securing the External Financing; and
(11)
any Taxation paid or that will become payable by any Group Company to the extent attributable to any of the foregoing.

SCHEDULE 5
Senior Management Sellers’ Representative

1.
Each Senior Management Seller hereby appoints Luca Zacchetti of Via Vincenzo Monti 23/D, Pero, Milan, failing which any other Senior Management Seller appointed for this purpose by the Institutional Seller to act on such Senior Management Seller’s behalf in relation to those matters contemplated by the Transaction Documents to be undertaken by the Senior Management Sellers’ Representative and, without prejudice to the generality of the foregoing, with power and authority on behalf of such Senior Management Seller to give, make or receive any notice, consent, approval, agreement, election or instruction as so contemplated by this Agreement and any Transaction Document.
2.
Each Senior Management Seller agrees and accepts that he shall be bound by, and may not, in the absence of fraud or fraudulent misrepresentation, challenge, any decision or action of the Senior Management Sellers’ Representative, and that the Senior Management Sellers’ Representative owes no duty of care or any other fiduciary duty to the Senior Management Sellers. Each Senior Management Seller agrees to indemnify the Senior Management Sellers’ Representative in relation to any expenses, damages, costs, or any other Losses the Senior Management Sellers’ Representative may suffer in relation to any actions he takes on behalf of the Senior Management Sellers or any of them individually under the terms of the appointment set out in this Schedule 5.
3.
The Buyer shall be entitled to rely on all and any communications provided by the Senior Management Sellers’ Representative within the scope of his authority (as described within this Schedule) as binding on each of the Senior Management Sellers.

004600-0228-14943-Active.18252126.10



4.
Any communication in respect of any matter within the authority of the Senior Management Sellers’ Representative described in this Schedule 5 shall be deemed (unless the context otherwise requires) to be provided to the Senior Management Sellers’ Representative as nominee for all of the Senior Management Sellers. In any event (notwithstanding anything to the contrary in this Agreement), any notice served on the Senior Management Sellers’ Representative will be deemed to have been validly served at the same time on each of the Senior Management Sellers on whom it is required to be served. The Senior Management Sellers’ Representative may act upon any instrument of written communication believed by the Senior Management Sellers’ Representative to be genuine and to be signed and presented by the proper person(s).

5.
Each of the Senior Management Sellers, as the case may be, undertakes to take whatever measures are necessary to ratify whatever the Senior Management Sellers’ Representative does (if the Senior Management Sellers’ Representative so requires pursuant to the powers and authorities contained in this Schedule 5) and each such Senior Management Seller acknowledges that the Senior Management Sellers’ Representative will have no liability nor will such Senior Management Seller have any action against the Senior Management Sellers’ Representative in relation to any actions of the Senior Management Sellers’ Representative carried out in accordance with the terms of this Schedule 5 (except in the case of fraud or fraudulent misrepresentation), and each such Senior Management Seller shall severally (and proportionately on the basis of each such Seller’s share of the Total Gross Consideration), indemnify and keep indemnified and hold harmless the Senior Management Sellers’ Representative against any such liabilities, provided that the Senior Management Sellers’ Representative shall not be entitled to indemnification for and in respect of any matter where its actions or inactions are fraudulent or dishonest.

SCHEDULE 6
Sellers Warranties and Limitations of Liability
Part I     General
a.
Each Warranty shall be separate and independent and shall not be limited by reference to any other Warranty.
b.
Where any Warranty is qualified by reference to the Senior Management Sellers' knowledge or in any other similar manner, it shall mean the actual (not imputed or constructive) knowledge of the Senior Management Sellers.
c.
Save in the case of fraud or fraudulent misrepresentation, the Sellers agree to waive any rights, remedies or claims which any of the Sellers may have against any Group Company or any director, officer, employee or agent of any Group Company in respect of any misrepresentation, inaccuracy or omission in or from any information or advice supplied or given by any such person on which the Sellers may have relied or which the Sellers may have taken into account in agreeing to give any Warranty or on which the Sellers may have relied on in agreeing to contribute to the Escrow Account.
Part II Business Warranties
1.     Organisation and Good Standing
(a)
Each of the Company and the Subsidiaries are companies duly incorporated and validly existing and in good standing under the Laws of its jurisdiction of incorporation or organisation, with full power and authority to conduct its business as it is being conducted. The Company and the Subsidiaries are not subject to or involved in insolvency, bankruptcy, liquidation or reorganisation procedures of any kind, have not ceased making payments and they are not insolvent or under liquidation.
(b)
With respect to the shares of capital stock (or other equity interest) of the Company, there are no outstanding: (A) options, warrants or other rights to purchase from the Company any capital stock of the same; (B) securities convertible into or exchangeable for shares of capital stock of the Company; or (C) other commitments of any kind of the Company for the issuance of additional shares of capital stock or options, warrants or other securities of the same.
2.     Subsidiaries

004600-0228-14943-Active.18252126.10


(a)
At the date of this Agreement, the Subsidiaries are those listed in the Company Data Book. The authorised, issued and outstanding shares of capital stock (or other equity interest) and the jurisdiction of incorporation or organisation of each Subsidiary is set forth in the Company Data Book, which sets out a true and accurate list of all of the shares of capital stock (or other equity interest) of each of such Subsidiaries and all of such shares or membership interests (except with respect to InSiamo s.c.a.r.l., limited to the relevant interest indirectly owned by the Company) are duly authorised, validly issued, and fully paid, and, except as encumbered in connection with the Senior Notes Indenture and the Revolving Credit Facility Agreement, such shares or membership interests are not subject to any Encumbrances. The Group Companies own full title to the shares of capital stock (or other equity interest) of each of the Subsidiaries (as well as InSiamo s.c.a.r.l. as indicated in the Company Data Book). None of the Group Companies own any interest in any other person.
(b)
So far as the Sellers are aware, no former holder of any share in any Subsidiary has threatened in writing to commence legal proceedings to establish that the title of a Group Company as holder of that share in the capital of a Subsidiary is invalid in any respect.
(c)
With respect to the shares of capital stock (or other equity interest) of each of the Subsidiaries, there are no outstanding: (A) options, warrants or other rights to purchase from Subsidiaries any capital stock of the same; (B) securities convertible into or exchangeable for shares of capital stock of the Subsidiaries; or (C) other commitments of any kind of the Subsidiaries for the issuance of additional shares of capital stock or options, warrants or other securities of the same.
3.
2014 Consolidated Financial Statements and Locked Box Accounts
The 2014 Consolidated Financial Statements and the Locked Box Accounts have been prepared in accordance with the Accounting Principles. The 2014 Consolidated Financial Statements show a true and fair view of the assets, liabilities and state of affairs of Rhino Bondco S.p.A and its Subsidiaries or Rhino Midco 2 Limited and its Subsidiaries, as applicable, as of 31 December 2014 and of the profits and losses and cash flows for the financial year ended on 31 December 2014, in accordance with the Accounting Principles. The Locked Box Accounts show a true and fair view of the assets, liabilities and state of affairs of the Group Companies as of 30 September 2015 and of the profits and losses and cash flows for the nine month period ended 30 September 2015, in accordance with the applicable Accounting Principles.
The statutory books, books of account and other records of each of Group Company required to be kept by applicable Laws in any relevant jurisdiction have substantially been maintained in accordance with those Laws.
For the purposes of this Warranty:
•
“ 2014 Consolidated Financial Statements” means the audited consolidated financial statements of Rhino Bondco S.p.A. and Rhino Midco 2 Limited as of 31 December 2014, prepared in accordance with the Accounting Principles, comprising the balance sheet, the profit and loss account, and the 'note esplicative', as approved by Rhino Bondco S.p.A. and Rhino Midco 2 Limited;

 

•
“ Accounting Principles ” means the International Financial Reporting Standards (IFRS), including the International Accounting Standards, issued by the International Accounting Standards Board (I.A.S.B.), and the Interpretations, issued by the IFRS Interpretations Committee (I.F.R.I.C), as respectively adopted by the European Union and in effect at the relevant time or for the relevant period, as applied by the Company in the preparation of the 2014 Consolidated Financial Statements, to be applied on a basis consistent with past practice; provided, however, that, with respect to the Locked Box Accounts only, Accounting Principles means the International Accounting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union.

4. Material Assets
Except as disclosed in the Business Warranties Disclosure Exhibit, each Group Company is the owner of all the material assets and properties reflected in its respective ledger (or equivalent books) as belonging to such Subsidiary and has a valid title to use all such material assets and properties as currently used free of any material Encumbrances.
5.     Real Properties     

004600-0228-14943-Active.18252126.10


The real properties leased by each Group Company are leased or subleased on the basis of commercial lease or sublease agreements compliant with the applicable Laws.
6.     Intellectual Property
(a)
None of the Group Companies have received any written communication that the intellectual property owned by the same may infringe the rights of any third party; and
(b)
except as disclosed in the Business Warranties Disclosure Exhibit, none of the Group Companies has violated any intellectual property right belonging to any third party that could give rise to a material claim by such third party and no written notice of any such violation has been received by any Group Company.
7.     Employees and Labour matters
(a)
The Business Warranties Disclosure Exhibit contains a true, correct, complete and accurate table with the total number of employees, as of 30 September 2015;
(b)
the Business Warranties Disclosure Exhibit contains the list of all material agency contracts entered into by each Group Company still in force as of the date of this Agreement;     
(c)
except as disclosed in the Business Warranties Disclosure Exhibit, each Group Company substantially complies and has complied in all material respect with the applicable labour Laws and collective agreements, the individual employment agreements concerning present and former employees and agents of that Group Company, including any provision thereof relating to the term and conditions of the employment, wages and salaries, working time, over time, mandatory hiring of disabled employees and registration in the mandatory books (but with the exclusion of any safety or similar Laws);
(d)
all directors of each of Group Company currently holding office have been duly compensated in accordance with the Laws and/or the agreements reached with them.
(e)
none of the consultants and/or independent contractors working for a Group Company is in a position to legitimately claim the status of employee of that Group Company;
(f)
where applicable, the staff leaving indemnities ("TFR" - trattamento di fine rapporto ) and any other indemnities due to employees of any Group Company have been correctly and are accurately accrued pursuant to the applicable Laws, collective bargaining agreements and the individual employment agreements;
(g)
all social security contributions due in connection with the present and former employees of any Group Company to public authorities pursuant to the terms of the pension plans and/or policies for the employees have been paid; and
(h)
all collective dismissal procedures implemented by each Group Company have been carried in accordance with applicable Law, including, with respect to any Subsidiary incorporated in Italy, Law n. 223/1991.
8.     Taxes
(a)
All material Tax returns, reports and forms required to be filed by any applicable state, local or foreign Tax Laws by or on behalf of a Group Company have been filed in a timely manner, within any applicable extension periods, in a substantially truthful, accurate and complete manner, with relevant Tax Authorities;
(b)
in all of its open Tax years, each Group Company has properly accounted for all Taxes in accordance with applicable Tax Laws;
(c)
each Group Company has duly and timely paid all Taxes becoming due and payable prior to 30 September 2015, determined in accordance with applicable Laws;
(d)
other than as set forth in the Business Warranties Disclosure Exhibit, no Group Company is a party to any outstanding material proceedings with any Tax Authority concerning the payment of Taxes nor has it received written notice of any material Tax audit or inspection, examination or other proceedings in this respect;

004600-0228-14943-Active.18252126.10


(e)
each Group Company has been tax resident in the jurisdiction where it has a legal seat, and has never been qualified as tax resident in another country; a Group Company has never carried on their business abroad by means of a permanent establishment; and
(f)
except as disclosed in Business Warranties Disclosure Exhibit, no Tax Authority has ever raised any objection in writing in relation to transactions between any Group Company falling under transfer pricing rules.
9.     Litigation and Claims
Except as set forth in Business Warranties Disclosure Exhibit, there are no pending (or, as far as the Senior Management Sellers are aware, threatened in writing) civil, administrative or other proceedings or other litigation whatsoever regarding a Group Company (including without limitation their business, assets and properties owned or used, contracts and rights, liabilities and obligations, permits and authorisations), whether before the ordinary courts or before administrative or other courts, jurisdictional body, authority or arbitrators involving an amount higher than €200,000 each.
10. Contractual Matters
Each of the contracts listed in Business Warranties Disclosure Exhibit: (i) as far as the Senior Management Sellers are aware, is valid and binding according to its respective terms and conditions applicable to the respective Group Company, (ii) is in effect and has not been terminated, and (iii) no written notice of cancellation, material breach or termination has been received with respect thereto by the relevant Group Company.
11.     Authorisations, Anti-corruption Law and Data Protection
(a)
Each Group Company has obtained from all the competent governmental and/or regulatory authority all material authorisations, licences, permits, certifications and registrations necessary for the carrying out of its activities as currently conducted, and it has not received any written notification from the relevant authorities that any such licenses, permits, certifications and registrations are not in full force and effect;
(b)
no Group Company has, directly or indirectly, taken any action which would cause it to be liable pursuant to any applicable anti-corruption or anti-bribery Law, including, without limitation, Italian Legislative Decree no. 231 of June 8, 2001; and
(c)
each Group Company substantially complies with all material applicable data protection Laws; no written notice or allegation has been received by any Group Company alleging a failure to comply with the data protection Laws.
12.     Guarantees in favour of Sellers or Connected Persons     
No Group Company has guaranteed any obligation of a Seller or a Connected Person of a     Seller.
13.     Competition Matters
No Group Company has received any written notice or other written communication by or on behalf of any competition authority or any third party in relation to any material issue relating to the breach of the competition Laws.
14.     No Broker
There is no person that is entitled to a finder’s fee or any type of similar brokerage commission from a Group Company in relation to or in connection with the transactions contemplated herein as a result of any agreement or understanding with the Senior Management Sellers, nor has any Senior Management Seller had any dealings related to the transactions contemplated herein with any person that may claim such a finder’s fee or similar brokerage commission. For the avoidance of doubt, this paragraph 14 shall not be deemed to apply to Advisers’ fees.
15.     Position since the Locked Box Date
Since the Locked Box Date, none of the Group Companies has declared, authorised, paid or made (or has agreed to declare, authorise, pay or make), any dividend or other distribution (whether in cash, stock or in kind) nor has reduced (or has agreed to reduce) paid-up share capital.

004600-0228-14943-Active.18252126.10


16.     Insurance and Product Liability
Particulars of the product liability and recall insurance, the general liability to third parties insurance and safety in the workplace insurance maintained by or on behalf of the Group Companies are set out in folders 3.14, 4.1.32, 4.4.26, 4.9.29 and 5.14 (as well as in document No. 4.7.1.199) of the Data Room. In respect of such insurances: (a) all the policies are in full force and effect; (b) there has been no notice of cancellation in respect of any policy; and (c) there has been no addition, variation or amendment in respect of any policy. As far as the Senior Management Sellers are aware, there are no product liability claims in an amount exceeding €250,000, which have been notified to the Group Companies in writing in the two years immediately preceding 11 December 2015 and which are outstanding immediately prior to the date of this Agreement.
17.     Compliance with Laws
As far as the Senior Management Sellers are aware, no Group Company has been in violation of applicable Laws in any material respect at any time in the last two years.
18.     2013 Tax Indemnity Escrow
The amount standing in the Escrow Account (pursuant to and as defined in the 2013 SPA) stands at €7,534,000. There is no written claim outstanding which, if successful, would result in a payment being made from the Escrow Account (as defined in the 2013 SPA).

Part III    Limitation of Liability
1.      Financial Limits
(a)
The Sellers shall not be liable in respect of any Warranty Claim unless the Sellers would, but for this paragraph 1(a), have a liability in respect of that Warranty Claim in excess of €200,000, excluding any liability for costs and interest. Where the same facts or circumstances give rise to more than one Warranty Claim, such Warranty Claims shall be aggregated for the purpose of determining whether such €200,000 sum has been exceeded. For the purposes of this paragraph 1(a) and paragraph 1(b) only, to the extent that any Warranty is qualified by materiality, any such materiality qualification shall be disregarded in assessing whether the quantum of damages (but not the question of breach) in respect of that Warranty Claim (or, where the same facts or matters give rise to more than one Warranty Claim, the aggregate quantum of damages (but not the question of breach) in respect of the series of Warranty Claims) exceeds €200,000 or €7,500,000 as the case may be.
(b)
The Sellers shall not be liable in respect of any Warranty Claim unless the Sellers have an aggregate liability in respect of all Warranty Claims (excluding Warranty Claims excluded by virtue of paragraph 1(a) above) in excess of €7,500,000, excluding any liability for costs and interest.
(c)
The aggregate liability of the Sellers (including costs and interest) for all claims under the Warranties shall not exceed €5,000,000.
(d)
The Buyer agrees that any liability of the Sellers for a Warranty Claim shall be satisfied solely and exclusively from the Escrow Account without recourse against the Sellers (without prejudice to a claim for fraud or fraudulent misrepresentation against a Seller).
2.
Time Limits
(a)
The Sellers shall not be liable in respect of any Warranty Claim unless notice of that Warranty Claim specifying the matter in reasonable detail, the Warranties which has or which is likely to have been breached and, to the

004600-0228-14943-Active.18252126.10


extent practicable, its best estimate of the amount of the Warranty Claim or likely claim is given to the Senior Management Sellers' Representative and the Institutional Seller on or before the date falling fifteen months from the Completion Date.
(b)
The Sellers shall not be liable in respect of any Warranty Claim if, on or before the date falling 20 Business Days after the date on which notice of that Warranty Claim is received by the Sellers, the Sellers have remedied the relevant breach or prevented the Buyer from suffering any loss in respect of the subject matter of that Warranty Claim or caused any loss so suffered by the Buyer to be made good. The Buyer shall comply with all reasonable requests made by the Sellers during that period for the purposes of so remedying any such breach or preventing any such loss, without the requirement of the Buyer having to expend funds (other than internal management time).
(c)
The Sellers shall not be liable in respect of any Warranty Claim unless legal proceedings have been issued and served on the Sellers on or before the date falling nine months after the date on which notice of that Warranty Claim was served under paragraph 2(a) of this Schedule 6 save, in the case of a Warranty Claim based upon a liability which is contingent, in which case such nine month period shall commence on the date that the contingent liability becomes an actual liability.
3.
Exclusion of liability: general
(a)
The Sellers shall not be liable in respect of a Warranty Claim to the extent the matter was fairly disclosed in the Data Room or in the Business Warranties Disclosure Exhibit, where “fairly disclosed” shall mean that the information directly ascertainable on the face of the material disclosed in the Data Room or the Business Warranties Disclosure Exhibit is sufficiently precise to put a reasonable buyer, with the benefit of appropriate professional advisers, on notice that the Warranty in question is inaccurate taking into account (in relation to the Data Room) the categorisation of the material disclosed by subject matter and/or geographical location.
(b)
The Sellers shall not be liable in respect of a Warranty Claim if at the time of entry by the Buyer and the Guarantor into this Agreement any of John S. Quinn and Walter P. Hanley had actual knowledge of the matter giving rise to such Warranty Claim. For the purposes of this paragraph neither John S. Quinn nor Walter P. Hanley shall be deemed to have actual knowledge of any matter solely by virtue of the fact that he had access to or viewed any particular document in the Data Room.
(c)
The Sellers shall not be liable in respect of a Warranty Claim to the extent that such claim relates to any matter specifically provided for in the Locked Box Accounts.
(d)
The Sellers shall not be liable in respect of a Warranty Claim to the extent that the matter giving rise to the Warranty Claim results from:
(i)
any act or omission before Completion carried out or omitted at the express written request of the Buyer or any other member of the Buyer's Group; or
(ii)
any breach by the Buyer or the Guarantor of its obligations under this Agreement; or
(iii)
any reorganisation of the Buyer's Group after Completion or change after Completion in the ownership of the Company; or

004600-0228-14943-Active.18252126.10


(iv)
any act, event, occurrence or omission after the date of this Agreement compelled by Law, or from the enactment, amendment or change in the interpretation after that date, of any statute, regulation or practice of any governmental, regulatory or other body, including a Tax Authority, whether or not having retrospective effect, or any change after the date of this Agreement in the rates of Taxation.
(e)
The Sellers shall not be liable in respect of a Warranty Claim to the extent that the matter giving rise to the Warranty Claim would not have arisen but for any act or omission on or after Completion carried out or omitted by or on behalf of the Buyer or any member of the Buyer's Group (including any Group Company) otherwise than in the ordinary course of business provided that such act or omission was not required as a consequence of any Law, regulation or statute in effect as at Completion or contractual obligation entered into prior to Completion by a Group Company.
(f)
The Sellers shall not be liable in respect of any Warranty Claim to the extent that the matter giving rise to such Warranty Claim constitutes a contingent liability of any Group Company or relates to a liability which is not capable of being quantified until such liability becomes an actual liability of that Group Company or becomes capable of being quantified. This paragraph shall not relieve the Buyer from any obligation to give notice under paragraph 3(a) in respect of any matter which constitutes a contingent liability on the Buyer or relates to a liability which is not capable of being quantified.
4.
Conduct of third party claims
(a)
Where a matter arises that could give rise to a Warranty Claim, the Buyer shall:
(i)
consult with the Senior Management Sellers’ Representative and the Institutional Seller as soon as reasonably practicable with regard to any actual or proposed developments relating to the matter in question and provide the Sellers with copies of all correspondence and documents in relation to that matter;
(ii)
where practicable, not admit liability in respect of or settle or compromise the matter in question (or offer to do so) without prior consultation with the Senior Management Sellers’ Representative and the Institutional Seller;
(iii)
consult with the Senior Management Sellers’ Representative and the Institutional Seller as to any ways in which the matter might be avoided, disputed, resisted, mitigated, settled, compromised, defended or appealed; and
(iv)
take such action, at the written request of the Sellers, as the Senior Management Sellers and the Institutional Seller may reasonably require, to avoid, dispute, resist, mitigate, settle, compromise, defend or appeal the third party claim,
provided that;
(b)
the provisions of paragraph 4 shall not apply:
(i)
where the subject matter of the relevant Warranty Claim involves a claim by or against a material customer or supplier of the business of the Group Companies;

004600-0228-14943-Active.18252126.10


(ii)
to any matters which would require the Buyer or any Group Company to breach a contractual or legal obligation existing at the date hereof or waive any legal privilege; or
(iii)
if the relevant actions or steps required by the Senior Management Sellers and the Institutional Seller would conflict with the Buyer's obligations under the terms of the Insurance Policy.
Subject to the Buyer's obligations under the terms of the Insurance Policy, if there is any dispute between the Sellers and the Buyer as to whether liability in respect of any third party claim should be admitted or whether that claim should be settled or compromised, liability shall not be admitted, and that claim shall not be settled or comprised, other than in accordance with the provisions of this paragraph. Any such dispute shall be referred to leading counsel agreed between the Senior Management Sellers’ Representative and the Institutional Seller and the Buyer or in default of agreement on or before the date falling five Business Days after the date on which an individual is first proposed for this purpose by either the Institutional Seller or the Buyer by the President for the time being of the Law Society of England and Wales on the application of either the Institutional Seller or the Buyer. Any individual to whom a dispute is so referred shall be instructed in writing to give a written opinion, as soon as is reasonably practicable, as to which of the courses of conduct proposed by the Buyer and by the Senior Management Sellers’ Representative and the Institutional Seller is most likely to result in the third party claim being agreed, settled or compromised at the least cost to the Sellers but bearing in mind the matters set out in paragraphs 4(b)(i) and 4(b)(ii) above. The decision of counsel (who shall act as expert and not as arbitrator) shall be final and binding on the Buyer and the Sellers for all purposes. Counsel's fees and expenses shall be borne by the Sellers and the Buyer as counsel may determine in his sole discretion or, if no such determination is made by the Sellers on the one part and the Buyer on the other part in equal shares. The parties shall then implement counsel’s decision as soon as is reasonably practicable. To the extent counsel’s fees are to be borne by the Sellers, such fee shall be funded solely and exclusively out of the Escrow Account without recourse against the Sellers.
5.
Insurance
(a)
The Sellers shall not be liable for any Warranty Claim if the Buyer or any member of the Buyer’s Group or any Group Company is insured against any loss, damage or liability which is the basis of such Warranty Claim under the terms of any insurance policy to the extent that the insured company has made a claim against the insurers under such policy and that claim has been settled, agreed or otherwise determined. The amount recoverable under the Warranty Claim shall be reduced by any amount which is recovered under such policy.
(b)
If the Buyer or any member of the Buyer’s Group is insured against any loss, damage or liability under the terms of any insurance policy (which was in place prior to execution of this Agreement or any other policy arising upon renewal of such policy or any policy subsequently put in place which covers the same or similar risk as such policy) which loss, damage or liability is the basis of a claim, then the insured company shall make a claim in respect of such loss, damage or liability against the insurers under such policy. If, after any payment is made in respect of a Warranty Claim, the Buyer or any member of the Buyer’s Group subsequently recovers or obtains payment in respect of the relevant Warranty Claim under such policy, the Buyer shall pay to each Seller an amount equal to the lesser of any amount paid in respect of the Warranty Claim and that Seller’s Proportionate Share of sum so recovered under such insurance policy (less any costs incurred in recovering such amount and any taxes attributable in respect of such amount).
6.
Reimbursement of Claims
If, after any payment is made in respect of a Warranty Claim, the Buyer or any member of the Buyer’s Group recovers from a third party (including any Tax Authority) (whether by payment, discount, credit, relief or otherwise) a sum which is referable to that Warranty Claim or any payment in respect of it (the “ Recovery Amount ”), then the Buyer shall forthwith

004600-0228-14943-Active.18252126.10


repay (or procure the repayment of) to each Seller its Proportionate Share of the Recovery Amount, save to the extent that any part of the Recovery Amount has been paid to that Seller pursuant to this Agreement. The Buyer agrees to take all reasonable steps to recover any such Recovery Amount from a third party as soon as reasonably practicable whether before or after payment is made in respect of a Warranty Claim.
7.
Mitigation
The Buyer shall (and shall procure than any relevant Group Company shall) take all reasonable actions to mitigate any loss suffered by it or the relevant Group Company which would, could or might result in a Warranty Claim.
8.
Reduction in Consideration
Any amount paid from the Escrow Account in respect of any Warranty Claim shall, to the greatest extent permitted by law, be treated as a reduction in the consideration payable by the Buyer to the Sellers.
9.
General
The Buyer shall not be entitled to recover any loss or amount more than once under this Agreement, including under Clause 4.2 and Paragraph 3 of Part II of Schedule 6. For this purpose, recovery by the Buyer or any Group Company shall be deemed to be a recovery by each of them.

004600-0228-14943-Active.18252126.10




SCHEDULE 7
Escrow
111.
In this Schedule, unless the context requires otherwise:
“ Claim ” means a claim made by the Buyer under the Warranties;
“ Disputed Claim ” has the meaning given to that expression in paragraph 3;
“ Escrow Payment Date ” means the date falling fifteen months from the Completion Date;
“ Notification Date ” has the meaning given to that expression in paragraph 3;
“ Opening Fee ” has the meaning given to that expression in paragraph 2;
“ Settled Claim ” has the meaning given to that expression in paragraph 7;
2.
At Completion, the Guarantor shall (or shall procure that the Buyer shall) pay the Escrow Amount into the Escrow Account in accordance with Clause 3.2(c). Thereafter, the Escrow Amount will be held in escrow until the Escrow Payment Date. No amounts shall be payable from the Escrow Account other than in accordance with this Schedule 7. Any bank or other charges arising on the Escrow Account shall be charged to the Escrow Account, with the exception of any initial fee payable to the Escrow Agent on opening the Escrow Account (the “ Opening Fee ”), which shall be paid by the Buyer with 50% of the Opening Fee being included in the Approved Company Adviser Fee Schedule (so that the Sellers bear their share). Any interest or profit generated on the Escrow Account shall accrue to and form part of the Escrow Amount. For the avoidance of doubt, the Escrow Amount shall be regarded as imposing a limit on the amount of any Warranty Claims and no claim may be made against any Seller in respect of a Warranty Claim other than a claim for a payment out of the Escrow Account.
3.
If the Buyer has a Claim against the Sellers it may at any time prior to the Escrow Payment Date, by written notice to the Institutional Seller and the Senior Management Sellers require the amount of the Claim to be satisfied out of the Escrow Amount. The date of receipt of the notice shall be referred to as the “ Notification Date ”. A notice given under paragraph 4(a) of Part III of Schedule 6 shall constitute a notice under this paragraph 3. In respect of any such notice:
(a)
it shall specify the monetary amount claimed or (if the amount cannot then be specified) the Buyer's bona fide estimate of the maximum monetary amount claimed and shall give reasonable particulars of the breach or other event to which the Claim relates;
(b)
the Institutional Seller and the Senior Management Sellers' Representative may within 10 Business Days of the Notification Date give the Buyer written notice of their objections to the Claim and that part of the amount (or estimated amount) claimed to which they object and, if they so object, that Claim or the disputed part of it shall be referred to as a “ Disputed Claim ” and an amount equal to the Disputed Claim (or the remaining amount standing to the credit of the Escrow Account (after deducting any amounts attributable to interest), if less) shall be retained in the Escrow Account, and an amount equal to the undisputed part of the Claim (or the remaining amount standing to the credit of the Escrow Account (after deducting any amounts attributable to interest), if less) shall be paid to the Buyer out of the Escrow Account as soon as reasonably practicable and any such payment shall satisfy the undisputed part of the Claim to the extent of any such payment; and
(c)
if the Institutional Seller and the Senior Management Sellers' Representative do not give the Buyer notice under paragraph 3(b) of this Schedule 7, the amount claimed shall be paid to the Buyer out of the Escrow Account (or the remaining amount standing to the credit of the Escrow Account (after deducting any amounts

004600-0228-14943-Active.18252126.10


attributable to interest), if less) as soon as reasonably practicable and any such payment shall satisfy the Buyer's Claim to the extent of any such payment.
4.
On Escrow Payment Date, there shall be paid to the Sellers the amount standing to the credit of the Escrow Account, after deduction of:
(a)
any amount due to be paid to the Buyer under paragraph 3 but not yet paid to the Buyer;
(b)
the total amount claimed in respect of any Disputed Claims which have not, as at that date, become Settled Claims, which Disputed Claims shall be dealt with under paragraph 8; and
(c)
any amounts attributable to interest which shall be dealt with in accordance with paragraph 9.
5.
The Buyer and the Sellers undertake to issue prompt instructions for payment from the Escrow Account of the amounts due under paragraph 4 above without delay.
6.
If a Disputed Claim has become a Settled Claim (whether before or after the Escrow Payment Date), an amount equal to the amount of the Settled Claim (or the remaining amount standing to the credit of the Escrow Account (after deducting any amounts attributable to interest), if less) shall be paid to the Buyer from the Escrow Account within 10 Business Days of the date on which the Claim became a Settled Claim.
7.
A Disputed Claim shall be regarded as a “ Settled Claim ” if:
(a)
the Institutional Seller, the Senior Management Sellers' Representative and the Buyer (or their respective solicitors) shall so agree in writing and the amount of the Settled Claim shall be the amount so agreed; or
(b)
a court of competent jurisdiction has awarded judgment in respect of the Disputed Claim and no right of appeal lies in respect of such judgment or the parties are debarred whether by passage of time or otherwise from exercising any such right of appeal and the amount of the Settled Claim shall be the amount awarded by the court.
8.
Where an amount (other than any amount attributable to interest) remains in the Escrow Account after the Escrow Payment Date the following amounts shall be released to the Sellers from the Escrow Account:
(a)
where a Disputed Claim has become a Settled Claim and the amount of that Disputed Claim exceeded the amount of the Settled Claim, the excess;
(b)
where proceedings in respect of a Disputed Claim shall not have been commenced in a court of competent jurisdiction on or before nine months from the Notification Date in respect of that Disputed Claim, the amount of that Claim;
(c)
where the Buyer has by notice withdrawn a Disputed Claim (in whole or in part), the amount of that Disputed Claim or amount attributable to the part withdrawn; and
(d)
where counsel of at least ten years’ standing (as agreed between the Senior Management Sellers’ Representative and the Institutional Seller and the Buyer or, in default of agreement on or before the date falling five Business Days after the date on which an individual is first proposed for this purpose, the President for the time being of the Law Society of England and Wales) is of the opinion that, on a balance of probabilities, a Disputed Claim has no reasonable prospect of success, the amount of that Disputed Claim, with the costs of obtaining such opinion from counsel to be borne by (i) the Buyer, in the event that the

004600-0228-14943-Active.18252126.10


Disputed Claim is deemed to have no reasonable prospect of success; or (ii) the Sellers, in the event that the Disputed Claim is deemed to have a reasonable prospect of success.
Any payment under this paragraph 8 shall be paid as soon as practicable after the date on which, under this paragraph 8, the amount is no longer liable to be retained in the Escrow Account.
9.
Upon the release of the whole or any part of the Escrow Amount to the Sellers or the Buyer, the Sellers or the Buyer (as the case may be) shall be entitled to any interest which has accrued pro rata to the amounts of the Escrow Amount so released. Any amounts withheld on account of Taxation shall be deducted from amounts paid under this paragraph pro rata to the amount released. Any payments under this paragraph shall be made as soon as practicable following any release of amounts held in the Escrow Account.
10.
For the purposes of this Schedule:
(a)
any amounts paid to the Sellers or to the Buyer under this Schedule 7 shall be transferred by electronic bank transfer to the relevant party;
(b)
proceedings shall not be treated as having been commenced by the Buyer unless they shall have been issued and served on the Institutional Seller and the Senior Management Sellers;
(c)
nothing in this Schedule 7 shall operate to require any set off against the amount in the Escrow Account found to be owing by the Buyer to the Sellers;
(d)
any payments made to the Sellers under this Schedule 7 shall be made in the Proportionate Share; and
(e)
each Seller shall bear its Proportionate Share of any costs, fees or expenses incurred by the Sellers in investigating or defending a Claim.
11.
As soon as reasonably practicable following the date of this Agreement, the Buyer and the Institutional Seller shall negotiate in good faith to agree the terms of an escrow operating agreement consistent with the terms of Schedule 7 with the Escrow Agent. If such parties are unable to agree the form of an escrow operating agreement by close of business (London time) on 29 February 2016 (or such later date as the Buyer and the Institutional Seller shall agree in writing), then the Institutional Seller shall, acting reasonably, be entitled to appoint any reputable escrow agent to undertake such role and the Buyer and the Institutional Seller shall enter into an escrow operating agreement with such party for the operation of the Escrow Account on standard terms of such escrow agent (with any changes agreed between the Buyer, the Institutional Seller and the relevant escrow agent). If such alternative escrow agent is used then it shall be treated as the Escrow Agent for the purposes of this Agreement.


004600-0228-14943-Active.18252126.10
Exhibit 10.49


Execution Copy
PRIVATE AND CONFIDENTIAL

SHARE SALE AND PURCHASE AGREEMENT
This Share Sale and Purchase Agreement (this "Agreement") is made on 27 November 2016 (the "Effective Date")
BETWEEN:
(1)
AxMeko AB, a company duly incorporated and organized under the laws of Sweden, with corporate registration number 556690-7969 ("the Seller"); and
(2)
LKQ Netherlands B.V., a company duly incorporated and organized under the laws of the Netherlands, with corporate registration number 852710896 ("the Buyer").
The Seller and the Buyer are hereinafter collectively referred to as the "Parties" and individually as a "Party".

BACKGROUND:
(A)
The Seller is a major shareholder in Mekonomen AB (publ), 556392-1971, ("the Company") which company has its shares listed at Nasdaq Stockholm.
(B)
The Seller currently holds 9,516,235 shares in the Company (the "Shares") which the Seller wishes to sell to the Buyer and the Buyer wishes to purchase the Shares on the terms and conditions set out in this agreement (the "Transaction").
(C)
In the context of the above, the Parties have entered into this agreement with the joint intention to conclude the anticipated Transaction as soon as possible.

IT IS AGREED as follows:
1
Sale and Purchase of the Shares
1.1     The Seller sells and the Buyer purchases the Shares, together with all rights attached to them.

2
Purchase Price
2.1    The purchase price for the Shares shall be SEK 1,665,341,125 (the "Purchase Price") (representing a price per Share of SEK 175).
2.2    In the event that the Buyer, prior to the end of the eighteenth month period from the completion of the Transaction contemplated in this Agreement, completes an agreement to sell the Shares, or part of the Shares, or otherwise use the Shares, or part of them, as consideration in another transaction, to a third party outside of the group of the Buyer for a price that exceeds the Purchase Price (the excess part of such price being called "Excess



Value"), then the Buyer shall pay in cash 50% of such Excess Value to the Seller within ten (10) Business Days from the date when such transaction is completed.

3
Completion
3.1    The Transaction shall be completed no later than 2 December 2016 (CET) (the "Completion Date") by the Parties as follows;
(a) the Buyer shall pay the Purchase Price in immediately available funds in SEK by wire transfer to the Seller's bank account with Svenska Handelsbanken AB, Swift: SWIFT HANDSESS, account no. 6103-512 387 672, IBAN: SE94 6000 0000 0005 1238 7672, such payment to be evidenced by confirmation to the Seller from the bank operating the Seller's Bank Account that such funds have been so credited; and
(b) the Seller shall procure that the Shares are transferred free and clear of all encumbrances to and registered on the account no. 9298894 with Nordea Bank, BIC: NDEASEXXX, in the name of MLPF&S New York (MLPFS BIC: MLCOUS3GATL), such registration to be evidenced by confirmation to the Buyer from the bank operating the account that the Shares have been so registered.
3.2    The parties agree that the actions and deliveries set out in clause 3.1 (a) - (b) made or performed at completion shall be deemed to have been made or performed simultaneously and that each such action and delivery shall require all other actions and deliveries to be completed.

4
Representations and warranties
4.1    The Seller makes the following representations and warranties to the Buyer, each of which is made on the Effective Date and on the Completion Date:

i.
The Seller has the necessary power and authority to execute this Agreement and to consummate the Transaction.
ii.
The Seller has obtained all corporate and governmental authorizations (including but not limited to the relevant competition authorities) and all other applicable mandatory or necessary consents, clearances, licenses and exemptions and taken any other actions required to authorize or permit the Seller to execute and to perform its obligations under this Agreement.
iii.
The Seller is the sole owner of the Shares. The Shares are validly issued, allotted and fully paid and are not subject to any encumbrances (i.e. any pledge, mortgage, lien, option, retention of title, right of pre-emption, right of first refusal or any other third party rights or other security interest).
iv.
The Seller is, after due enquiry with its representatives on the board of the Company, not aware of the Company maintaining any insider list relating to inside information which may have a negative effect on the price of the shares in the Company.
4.2    The Buyer makes the following representations and warranties to the Seller, each of which is made on the Effective Date and on the Completion Date:

i.
The Buyer has the necessary power and authority to execute this Agreement and to consummate the Transaction.





ii.
The Buyer has obtained all corporate and governmental authorizations (including but not limited to the relevant competition authorities) and all other applicable mandatory or necessary consents, clearances, licenses and exemptions and taken any other actions required to authorize or permit the Seller to execute and to perform its obligations under this Agreement.

5
Post Completion Undertakings
5.1    The Seller undertakes to take any action in furtherance of enabling the Buyer to appoint one member of the Company’s Nomination Committee as soon as possible following the Completion Date.

6
Miscellaneous
6.1    Each Party shall be responsible for its obligation, if any, to disclose changes in its shareholding in the Company pursuant to the rules in the Swedish Financial Instruments Trading Act (Sw. lag (1991:980) om handel med finansiella instrument).
6.2    Subject to Section 6.1, any public disclosure of the existence or contents of this Agreement will need to be agreed in advance between the Parties, except as required by applicable law or stock exchange regulation.
6.3    Each Party shall bear its own costs incurred by it in connection with the preparation, negotiation and entry into of this Agreement.
6.4    Each of the Parties confirms that this Agreement represents the entire understanding and constitutes the whole agreement between the Parties in relation to its subject matter and supersedes all prior agreements and understandings, whether oral or written, between the Parties with respect to the subject matter hereof.

7
Governing Law and Disputes
This Agreement shall be governed by and construed in accordance with the laws of Sweden. Any dispute, controversy or claim arising out of, or in connection with, this Agreement, or the breach, termination or invalidity of the Agreement, shall be settled by arbitration in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The place of arbitration shall be Stockholm, Sweden. The language to be used in the arbitral proceedings shall be English.
____________________

This Agreement has been duly executed in two (2) original copies, of which each of the Parties has taken one (1) copy.
27 November 2016







AxMeko AB                                LKQ Netherlands B.V.    

__ /s/ Paul Schrotti _____________                        __ /s/ John Quinn ___________
Name:     Paul Schrotti                            Name: John Quinn
Title:    Director, Authorized Signatory                    Title: Director and Authorized Signatory    



Exhibit 10.50

Execution Version
CONFIDENTIAL

STOCK AND ASSET PURCHASE AGREEMENT
BY AND AMONG
VITRO AUTOMOTIVE GLASS LLC,
VIMEXICO, S.A. DE C.V.,
as Buyers,
LKQ PGW Holdings, LLC,
PITTSBURGH GLASS WORKS, LLC,
KPGW EUROPEAN HOLDCO, LLC,
PITTSBURGH GLASS WORKS, ULC,
as Sellers,
PGW HOLDINGS, LLC,
as the Company, and
solely for the purposes of Section 13 ,
LKQ CORPORATION,
VITRO, S.A.B. DE C.V.
and
VITRO ASSETS CORP.
Dated as of December 18, 2016



[NEWYORK 3251393_44]


TABLE OF CONTENTS

Page
1.
DEFINITIONS                                      2
1.1
Certain Definitions                                  7
1.2
Certain Matters of Interpretation and Construction                  21
2.
THE ACQUISITION                                      22
2.1
Purchase and Sale of Mexican JV Shares                      22
2.2
Purchase and Sale of PGW Luxembourg Interest                  22
2.3
Purchase and Sale of Company Interests                       22
2.4
Purchase and Sale of Canadian Assets and Assumption of Related Liabilities 23
2.5
Closing                                      23
2.6
Tax Treatment                                  23
3.
PURCHASE PRICE                                      23
3.1
Purchase Price                                  23
3.2
Payments at Closing                                  23
3.3
Closing Estimates                                  24
3.4
Post-Closing Adjustment Determination                      24
3.5
Adjustments to Purchase Price                          26
3.6
Deferred Consideration                              26
3.7
Tax Withholding                                  28
4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY              29
4.1
Corporate Matters.                                  29
4.2
Capitalization                                  30
4.3
Non-Contravention, etc                              31
4.4
Licenses, Permits, Compliance with Laws, etc                  31
4.5
Governmental Consents and Approvals                      32
4.6
Financial Statements, etc                              32
4.7
Assets                                      34
4.8
Real Property                                  35
4.9
Intellectual Property Rights                              36
4.10
Material Contracts                                  38


4.11
Change in Condition                                  40
4.12
Insurance                                      40
4.13
Tax Matters                                      41
4.14
Employee Benefit Plans                              43
4.15
Litigation                                      46
4.16
Environmental Matters                              46
4.17
Labor Relations                                  47
4.18
Affiliate Transactions                              48
4.19
Customers and Suppliers                              48
4.20
Product Warranty; Liabilities                          49
4.21
Financial Advisory, Finder’s or Broker’s Fees                  49
4.22
ARG Business Distribution                              49
5.
REPRESENTATIONS AND WARRANTIES OF SELLERS          49
5.1
Organization, Power and Standing of Sellers                  50
5.2
Authorization and Enforceability                          50
5.3
Non-Contravention, etc                              50
5.4
Governmental Consents and Approvals                      50
5.5
Ownership Units                                  50
5.6
Litigation                                      51
5.7
Financial Advisory, Finder’s or Broker’s Fees                  51
5.8
Solvency                                      51
6.
REPRESENTATIONS AND WARRANTIES OF BUYERS                  51
6.1
Corporate Matters                                  51
6.2
Governmental Consents and Approvals                      52
6.3
Financing; Sufficiency of Funds; Solvency                      52
6.4
Litigation                                      54
6.5
Financial Advisory, Finder’s or Broker’s Fees                  54
6.6
No Adverse Impact                                  54
7.
CERTAIN AGREEMENTS OF THE PARTIES                      54
7.1
Conduct of Business                                  54
7.2
Preparation for Closing                              59
7.3
Employees                                      61
7.4
Access Prior to Closing                              64



7.5
Access After Closing                              65
7.6      Indemnification of Managers, Directors, Officers and Employees      66
7.7
Exclusivity                                      67
7.8
Waiver of Conflicts; Privilege                          67
7.9
Confidentiality                                  68
7.10
Restrictive Covenants                              68
7.11
Release                                      72
7.12
Certain Notices; Financial Information                      73
7.13
Termination of Affiliate Agreements; Intercompany Arrangements      74
7.14
ARG Business Distribution                              74
7.15
Maintenance of Registered Intellectual Property.                  79
7.16
Resignations                                      79
7.17
Further Assurances                                  79
7.18
Financing                                      80
7.19
Termination of Certain Agreements with PGW Canada              83
7.20
Insurance Matters                                  83
7.21
Letters of Credit                                  85
7.22
Settlement                                      86
7.23
China Joint Venture                                  86
7.24
Supply Agreement                                  87
8.
CONDITIONS TO THE OBLIGATION TO CLOSE OF BUYERS              87
8.1
Representations, Warranties and Covenants                      87
8.2
Governmental Authorization; Litigation                      87
8.3
FIRPTA Statement                                  88
8.4
Escrow Agreement                                  88
8.5
Lien and Guarantee Releases                          88
8.6
Third-Party Consents                              88
8.7
Supply Agreement                                  88
8.8
Transition Services Agreement                          88
8.9
Intellectual Property Agreement                          88
8.10
ARG Business Distribution                              88
8.11
Required Information                              88
8.12
Audited Net Operating Income                          88



9.
CONDITIONS TO THE OBLIGATION TO CLOSE OF SELLERS          88
9.1
Representations, Warranties and Covenants                      89
9.2
Governmental Authorization; Litigation                      89
9.3
Escrow Agreement                                  89
9.4
Supply Agreement                                  89
9.5
Transition Services Agreement                          89
9.6
Intellectual Property Agreement                          89
10.
SURVIVAL; INDEMNIFICATION; TAX MATTERS                  89
10.1
Nonsurvival of Representations and Warranties                  89
10.2
Special Indemnification by Sellers                          90
10.3
Special Indemnification by Buyers                          91
10.4
Limitations on Liability                              91
10.5
Indemnification Procedures                              92
10.6
Tax Treatment of Indemnification Payments                  95
10.7
Exclusive Remedy                                  95
10.8
Tax Matters                                      95
11.
CONSENT TO JURISDICTION; JURY TRIAL WAIVER                  98
11.1
Consent to Jurisdiction                              98
11.2
WAIVER OF JURY TRIAL                              99
11.3
Attorneys’ Fees and Expenses                          99
12.
TERMINATION                                      99
12.1
Termination                                      100
12.2
Effect of Termination                              101
13.
GUARANTIES OF LKQ AND VITRO                          101
13.1
Guaranty of LKQ                                  101
13.2
Absolute and Unconditional LKQ Guaranty                  102
13.3
Buyers and Buyer Indemnitees                          104
13.4
Waiver                                      104
13.5
Subrogation                                      104
13.6
Costs and Expenses                                  104
13.7
Guaranty of Vitro and Vitro Assets Corp.                      104
13.8
Absolute and Unconditional Vitro Guaranty                  105
13.9
Sellers and Seller Indemnitees                          107



13.10
Waiver                                      107
13.11
Subrogation                                      107
13.12
Costs and Expenses                                  107
14.
MISCELLANEOUS                                      107
14.1
Entire Agreement; Waivers                              107
14.2
Amendment or Modification                          108
14.3
Severability                                      108
14.4
Successors and Assigns                              108
14.5
Notices                                      108
14.6
Public Announcements                              109
14.7
Headings                                      110
14.8
Disclosure                                      110
14.9
Counterpart and Electronic Signatures                      110
14.10
Governing Law                                  110
14.11
Specific Performance                              111
14.12
No Third-Party Beneficiaries; No Recourse Against Third Parties          111
14.13
Negotiation of Agreement; Expenses                      112
14.14
Acknowledgement                                  113
14.15
Financing Related Provisions                      114



EXHIBITS
Exhibit A
Working Capital Calculation
Exhibit B
Form of Escrow Agreement
Exhibit C
Form of Supply Agreement
Exhibit D
Form of Reverse Transition Services Agreement
Exhibit E
Form of Intellectual Property Agreement
Exhibit F
Pension Funding Adjustment Amount
Exhibit G
As Agreed
Exhibit H
Form of Resignation and Release Letters

SCHEDULES
Schedule 1.1.34
Distributed ARG Business
Schedule 4.1.4
Company Officers, Managers and Directors
Schedule 4.2.2
Contractual Obligations Affecting Company Equity Interests
Schedule 4.2.3
Company Subsidiaries
Schedule 4.2.4
Schedule 4.2.5
Schedule 4.2.6
Schedule 4.2.7
Company Equity Interests
Company Subsidiary Officers, Managers and Directors
Company Joint Ventures
Debt
Schedule 4.3
Non-Contravention
Schedule 4.4
Licenses and Permits
Schedule 4.6.1
Financial Statements
Schedule 4.6.5
Internal Controls
Schedule 4.6.9
CapEx Projection
Schedule 4.7.1
Title to Assets
Schedule 4.7.2
Condition and Sufficiency of Assets
Schedule 4.8.1
Furniture/Fixtures/Equipment/Inventory
Schedule 4.8.2
Title to Owned Real Property
Schedule 4.8.3
Leases
Schedule 4.8.3.2
Leases - Material Breach
Schedule 4.8.3.3
Rights of First Refusal
Schedule 4.8.4
Capitalized Leases
Schedule 4.9.1
Registered Intellectual Property
Schedule 4.9.1(i)
Registered Intellectual Property - Governmental Orders
Schedule 4.9.1(ii)
Registered Intellectual Property - Actions
Schedule 4.9.2
Right to Use Intellectual Property
Schedule 4.9.5
No Infringement of Intellectual Property
Schedule 4.10
Material Contracts
Schedule 4.11
Change in Condition
Schedule 4.12
Insurance Policies
Schedule 4.13
Tax Matters
Schedule 4.14.1
Employee Benefit Plans
Schedule 4.14.2
No Defined Benefit Pension Plans
Schedule 4.14.2.5
Controlled Group Member Withdrawal
Schedule 4.14.3
Company Plan Qualifications and Administration; Certain Taxes and Penalties
Schedule 4.14.5
Retiree Benefits; Certain Welfare Plans
Schedule 4.14.6
Change in Control Payments


Schedule 4.15
Litigation
Schedule 4.16
Environmental Matters
Schedule 4.17
Labor Relations
Schedule 4.18
Affiliate Transactions
Schedule 4.19.1
OEM Customers
Schedule 4.19.2
Suppliers
Schedule 7.1
Conduct of Business Exceptions
Schedule 7.2.3
Consents
Schedule 7.3.1
Potential Canadian OEM Employees
Schedule 7.3.3
Assumed Liabilities Company Employees
Schedule 7.10.2
Seller Non-Solicitation
Schedule 7.10.5
Buyer Non-Solicitation
Schedule 7.14.1
ARG Employees
Schedule 7.14.5
ARG Shared Contracts
Schedule 7.14.6
Distributed ARG Business Intellectual Property
Schedule 7.18.3
Company & Company Subsidiary Logos
Schedule 7.19
Termination of Certain Agreements with PGW Canada
Schedule 7.22
Settlement
Schedule 8.6
Third-Party Consents
Schedule 10.2.5
Special Indemnification by Sellers




STOCK AND ASSET PURCHASE AGREEMENT
This STOCK AND ASSET PURCHASE AGREEMENT (this “ Agreement ”) is made as of the 18th day of December, 2016, by and among (i) Vitro Automotive Glass LLC, a Delaware limited liability company (“ US Buyer ”), (ii) VIMEXICO, S.A. de C.V., a Mexican sociedad anónima de capital variable (“ Mexican Buyer ”), (iii) LKQ PGW Holdings, LLC, a Delaware limited liability company (“ Holdings ”), (iv) PGW Holdings, LLC, a Delaware limited liability company (the “ Company ”), (v) Pittsburgh Glass Works, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“ PGW ”), (vi) KPGW European Holdco, LLC, a Delaware limited liability company (“ European Holdco ”), (vii) Pittsburgh Glass Works, ULC, a Canadian unlimited liability corporation (“ PGW Canada ”), (vii) solely for the purposes of Section 13 , LKQ Corporation, a Delaware corporation (“ LKQ ”), (viii) solely for the purposes of Section 13 , Vitro, S.A.B. de C.V., a Mexican sociedad anónima bursátil de capital variable (“ Vitro ”) and (viii) solely for the purposes of Section 13 , Vitro Assets Corp., a Texas corporation (“ Vitro Assets Corp. ”).
RECITALS
WHEREAS, Holdings owns all of the issued and outstanding limited liability company interests (the “ Company Interests ”) in the Company;
WHEREAS, the Company owns all of the issued and outstanding limited liability company interests in PGW;
WHEREAS, European Holdco owns all of the issued and outstanding limited liability company interests (the “ PGW Luxembourg Interests ”) in Pittsburgh Glass Works, S.a.r.l. (“ PGW Luxembourg ”);
WHEREAS, PGW owns 50% of the issued and outstanding shares of capital stock (“ Mexican JV Shares ”) in Cristal Laminado O Templado, S.A. de C.V. (the “ Mexican JV ”);


WHEREAS, PGW Canada owns the Canadian Assets (as defined below);
WHEREAS, European Holdco and PGW wish to sell to Mexican Buyer, and Mexican Buyer wishes to purchase from European Holdco and PGW, the PGW Luxembourg Interests and the Mexican JV Shares, respectively (the “ Subsidiary Acquisition ”), subject to the terms and conditions set forth herein;
WHEREAS, immediately following the Subsidiary Acquisition, Holdings wishes to sell to US Buyer, and US Buyer wishes to purchase from Holdings, the Company Interests (the “ Company Acquisition ”), subject to the terms and conditions set forth herein;
WHEREAS, immediately following the Company Acquisition, PGW Canada wishes to sell to PGW, and PGW wishes to purchase from PGW Canada, the Canadian Assets (the “ Asset Acquisition ” and, together with the Subsidiary Acquisition and the Company Acquisition, the “ Acquisition ”), subject to the terms and conditions set forth herein; and
WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements in connection with the Acquisition and the other Transactions (as defined below) and also to prescribe various conditions to the Acquisition and the other Transactions.
NOW, THEREFORE, in consideration of the premises and mutual promises herein made, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
AGREEMENT




1.
DEFINITIONS. The following terms are defined elsewhere in this Agreement in the Sections identified below:

Term
Definition
“2015 Audited Financial Statements”
Section 1.1.1
“2015 Unaudited Financial Statements”
Section 1.1.2
“2016 Audited Financial Statements”
Section 1.1.3
“2016 Bonuses”
Section 7.3.7
“2017 Unaudited Financial Statements”
Section 1.1.4
“AAA”
Section 3.4.2
“Accounting Principles”
Section 1.1.5
“Acquisition”
Recitals
“Action”
Section 1.1.6
“Adjustment Escrow Account”
Section 1.1.7
“Adjustment Escrow Amount”
Section 1.1.8
“Affiliate”
Section 1.1.9
“Aftermarket”
Section 1.1.10
“Agreement”
Preamble
“Allocation”
Section 10.8.6
“Allocation Schedule” or “Allocation Schedules”
Section 10.8.6
“Alternative Transaction”
Section 7.7.1
“AML Laws”
Section 1.1.11
“Anticorruption Laws”
Section 1.1.12
“Antitrust Laws”
Section 1.1.13
“Arbitration Rules”
Section 3.4.2
“Arbitrator”
Section 3.4.2
“ARG Business Confidential Information”
Section 7.10.4
“ARG Business Distribution”
Section 7.14.1
“ARG Employees”
Section 7.14.1
“ARG Restricted Contracts”
Section 7.14.5
“ARG Shared Contracts”
Section 7.14.5.1
“As Agreed”
Section 1.1.14
“Asset Acquisition”
Recitals
“Assets”
Section 4.7.1
“Audited Net Operating Income”
Section 1.1.15
“Auto Glass”
Section 1.1.16
“Backstop Letters of Credit”
Section 7.21.1




[NEWYORK 3251393_44]


Term
Definition
“Base Purchase Price”
Section 1.1.17
“Board of Managers”
Section 1.1.18
“Bonuses”
Section 7.3.7
“Business”
Section 1.1.19
“Business Confidential Information”
Section 7.10.1
“Business Day”
Section 1.1.20
“Buyers”
Section 1.1.21
“Buyer Indemnitees”
Section 10.2
“Buyer Related Parties”
Section 7.8
“Canada Holdco”
Section 1.1.22
“Canadian Assets”
Section 2.4
“Canadian Transferred Employee”
Section 7.3.1
“Cap”
Section 10.4.3
“CapEx Budget”
Section 4.6.9
“Cash”
Section 1.1.23
“Claim Notice”
Section 10.5.1
“Claims”
Section 7.11
“Closing”
Section 2.5
“Closing Cash”
Section 3.4
“Closing Date”
Section 2.5
“Closing Debt”
Section 3.4
“Closing Statement”
Section 3.4
“Closing Working Capital Amount”
Section 3.4
“Closing Year Bonuses”
Section 7.3.7
“CNBV Date”
Section 7.12.2.2
“Code”
Section 1.1.24
“Collective Bargaining Agreement”
Section 1.1.25
“Company”
Preamble
“Company Acquisition”
Recitals
“Company Cash Amount”
Section 1.1.26
“Company Employees”
Section 7.3.1
“Company Intellectual Property”
Section 4.9.1
“Company Interests”
Recitals
“Company Joint Venture”
Section 1.1.27
“Company Plan”
Section 1.1.28
“Company Schedules”
Section 4
“Company Subsidiary”
Section 1.1.29
“Confidentiality Agreement”
Section 7.4.3
“Contractual Obligation”
Section 1.1.30
“Controlled Group Members”
Section 4.14.2.4
“Credit Agreement”
Section 1.1.31
“D&O Indemnified Persons”
Section 7.6.1
“Debt”
Section 1.1.32
“Debt Documents”
Section 6.3.1
“Debt Financing”
Section 6.3.1




[NEWYORK 3251393_44]


Term
Definition
“Base Purchase Price”
Section 1.1.17
“Board of Managers”
Section 1.1.18
“Bonuses”
Section 7.3.7
“Business”
Section 1.1.19
“Business Confidential Information”
Section 7.10.1
“Business Day”
Section 1.1.20
“Buyers”
Section 1.1.21
“Buyer Indemnitees”
Section 10.2
“Buyer Related Parties”
Section 7.8
“Canada Holdco”
Section 1.1.22
“Canadian Assets”
Section 2.4
“Canadian Transferred Employee”
Section 7.3.1
“Cap”
Section 10.4.3
“CapEx Budget”
Section 4.6.9
“Cash”
Section 1.1.23
“Claim Notice”
Section 10.5.1
“Claims”
Section 7.11
“Closing”
Section 2.5
“Closing Cash”
Section 3.4
“Closing Date”
Section 2.5
“Closing Debt”
Section 3.4
“Closing Statement”
Section 3.4
“Closing Working Capital Amount”
Section 3.4
“Closing Year Bonuses”
Section 7.3.7
“CNBV Date”
Section 7.12.2.2
“Code”
Section 1.1.24
“Collective Bargaining Agreement”
Section 1.1.25
“Company”
Preamble
“Company Acquisition”
Recitals
“Company Cash Amount”
Section 1.1.26
“Company Employees”
Section 7.3.1
“Company Intellectual Property”
Section 4.9.1
“Company Interests”
Recitals
“Company Joint Venture”
Section 1.1.27
“Company Plan”
Section 1.1.28
“Company Schedules”
Section 4
“Company Subsidiary”
Section 1.1.29
“Confidentiality Agreement”
Section 7.4.3
“Contractual Obligation”
Section 1.1.30
“Controlled Group Members”
Section 4.14.2.4
“Credit Agreement”
Section 1.1.31
“D&O Indemnified Persons”
Section 7.6.1
“Debt”
Section 1.1.32
“Debt Documents”
Section 6.3.1
“Debt Financing”
Section 6.3.1


[NEWYORK 3251393_44]


Term
Definition
“December 2016 Unaudited Financial Statements”
Section 1.1.33
“Deductible”
Section 10.4.1
“Deferred Consideration”
Section 3.6.1
“Deferred Consideration Calculation”
Section 3.6.2(i)
“Deferred Consideration Notice of Disagreement”
Section 3.6.2(iii)
“Deferred Consideration Review Period”
Section 3.6.2(ii)
“Deferred Consideration Statement”
Section 3.6.2(i)
“Deficit Amount”
Section 3.5.2
“Delaware Courts”
Section 11.1
“Direct Claim”
Section 10.5.1
“Dispute Notice”
Section 3.4.1
“Dispute Resolution Procedure”
Section 13.2.2
“Distributed ARG Business”
Section 1.1.34
“Distribution”
Section 1.1.35
“DLLCA”
Section 1.1.36
“Effect”
Section 1.1.68
“Employee Plan”
Section 1.1.37
“Enforceable”
Section 1.1.38
“Environmental Law”
Section 1.1.39
“Equity Financing”
Section 6.3.1
“Equity Funding Letter”
Section 6.3.1
“Equity Interest”
Section 1.1.40
“ERISA”
Section 1.1.41
“Escrow Agent”
Section 1.1.42
“Escrow Agreement”
Section 1.1.43
“Estimated Closing Statement”
Section 3.3
“Estimated Total Equity Value”
Section 3.3
“European Holdco”
Preamble
“Excess Deficit Amount”
Section 3.5.2
“Export Control and Sanctions Laws”
Section 1.1.44
“Final Pension Funding Adjustment Amount”
Section 3.4
“Final Transaction Expenses”
Section 3.4
“Financial Statements”
Section 4.6.1
“Financing”
Section 6.3.1
“Financing Documents”
Section 6.3.1
“Financing Sources”
Section 1.1.45
“Former ARG Employees”
Section 7.14.8.1
“GAAP”
Section 1.1.46
“Governmental Authority”
Section 1.1.47
“Governmental Order”
Section 1.1.48
“Gross Profit Margin”
Section 1.1.49
“Guarantee”
Section 1.1.50
“Hazardous Substance”
Section 1.1.51
“Holdings”
Preamble
“HSR Act”
Section 1.1.52



[NEWYORK 3251393_44]



Term
Definition
“I&S TSA Cash”
Section 1.1.23
“Increase Amount”
Section 3.5.1
“Indemnified Party”
Section 10.5.1
“Indemnifying Party”
Section 10.5.1
“Indentures”
Section 1.1.53
“Insurance Policies”
Section 4.12
“Intellectual Property”
Section 1.1.54
“Intellectual Property Agreement”
Section 1.1.55
“Intercompany Accounts”
Section 1.1.56
“Investment”
Section 7.23
“IRS”
Section 4.13.5
“Issuer”
Section 1.1.57
“Knowledge of Buyers”
Section 1.1.58
“Knowledge of the Company”
Section 1.1.59
“Lease” or “Leases”
Section 4.8.3
“Leased Real Property”
Section 4.8.1
“Legal Requirement”
Section 1.1.60
“Liability”
Section 1.1.61
“Lien”
Section 1.1.62
“LKQ”
Preamble
“LKQ Group Member”
Section 1.1.63
“LKQ Guaranteed Obligations”
Section 13.1.1
“LKQ Guaranty”
Section 13.1.1
“LKQ Insurance Policies”
Section 1.1.64
“LKQ Reimbursement Amounts”
Section 7.20.2
“Loss”
Section 1.1.65
“Marketing Efforts”
Section 1.1.66
“Marketing Material”
Section 1.1.67
“Material Adverse Effect”
Section 1.1.68
“Material Contract” or “Material Contracts”
Section 4.10
“Mexican Buyer”
Preamble
“Mexican JV”
Recitals
“Mexican JV Shares”
Recitals
“New OEM Agreement”
Section 3.6.1
“Nonparty Affiliates”
Section 14.12.3
“Nonparty Buyer Affiliate”
Section 14.12.3
“Nonparty Seller Affiliate”
Section 14.12.2
“OEM Claim”
Section 7.20.1
“OEM Customers”
Section 1.1.69
“OEM Restricted Contract”
Section 7.14.5.2
“OEM Shared Contract”
Section 7.14.5.2
“Off-the-Shelf Software”
Section 1.1.70
“Operating Income Adjustment”
Section 1.1.71
“Organizational Documents”
Section 1.1.72
“Outstanding Amount”
Section 7.21.1




[NEWYORK 3251393_44]



Term
Definition
“Outstanding Letters of Credit”
Section 7.21.1
“Owned Real Property”
Section 4.8.2
“Parties”
Section 1.1.73
“Pension Funding Adjustment Amount”
Section 1.1.74
“Pension Plan”
Section 1.1.75
“Permitted ARG Business”
Section 1.1.76
“Person”
Section 1.1.77
“PGW”
Preamble
“PGW Canada”
Preamble
“PGW Hong Kong”
Section 7.2.3
“PGW Insurance Policies”
Section 1.1.78
“PGW Luxembourg”
Recitals
“PGW Luxembourg Interests”
Recitals
“PGW Reimbursement Amounts”
Section 7.20.4
“PGW RIP”
Section 7.14.8.1
“PGW Savings Plan”
Section 7.14.8.2
“Potential ARG Employees”
Section 7.14.1
“Potential Canadian OEM Employees”
Section 7.3.1
“Pre-Closing Representation”
Section 7.8
“Pre-Closing Tax Period”
Section 1.1.79
“Prior Company Counsel”
Section 7.8
“Public Software”
Section 1.1.80
“Real Property”
Section 4.8.5
“Registered Intellectual Property”
Section 4.9.1
“Release”
Section 1.1.81
“Released Parties”
Section 7.11
“Releasing Parties”
Section 7.11
“Representatives”
Section 1.1.82
“Required Amount”
Section 6.3.1
“Required Information”
Section 1.1.83
“Resolvable Dispute”
Section 13.2.2
“Seller Indemnitees”
Section 10.3
“Seller Parties’ Pre-Closing Confidential Communications”
Section 7.8
“Seller Plan”
Section 1.1.84
“Seller Related Parties”
Section 7.8
“Sellers”
Section 1.1.85
“September 2016 Unaudited Financial Statements”
Section 1.1.86
“Severance Plan”
Section 7.3.1
“Software”
Section 1.1.87
“Straddle Period”
Section 1.1.88
“Subsidiary”
Section 1.1.89
“Subsidiary Acquisition”
Recitals
“Supply Agreement”
Section 1.1.90
“Tax”
Section 1.1.91
“Tax Authority”
Section 1.1.92



[NEWYORK 3251393_44]


Term
Definition
“Tax Cap”
Section 10.4.6
“Tax Deductible”
Section 10.4.5
“Tax Matter”
Section 1.1.93
“Tax Return”
Section 1.1.94
“Taxes Paid On Initial Returns”
Section 10.8.2
“Third-Party Claim”
Section 10.5.1
“Total Equity Value”
Section 1.1.95
“Trademarks”
Section 1.1.54
“Transaction Documents”
Section 1.1.96
“Transaction Expenses”
Section 1.1.97
“Transactions”
Section 1.1.98
“Transition Services Agreement”
Section 1.1.99
“Unaudited Net Operating Income”
Section 1.1.100
“Uncontested Claims”
Section 1.1.101
“US Buyer”
Preamble
“Vitro”
Preamble
“Vitro Assets Corp”
Preamble
“Vitro Guaranteed Obligations”
Section 13.7.1
“Vitro Guaranty”
Section 13.7.1
“WARN Act”
Section 7.1.22
“Welfare Plan”
Section 1.1.37
“Working Capital”
Section 1.1.102
“Working Capital Amount”
Section 1.1.103
“Working Capital Target”
Section 1.1.104



1.1     Certain Definitions . As used in this Agreement, the following terms will have the following meanings:

1.1.1    “ 2015 Audited Financial Statements ” means (i) the audited carve-out balance sheets of the Business as of December 31, 2015 and 2014, and (ii) the related audited carve-out statements of income, comprehensive income, cash flows and stockholders’ equity for the fiscal years then ended, and the related notes thereto.

1.1.2    “ 2015 Unaudited Financial Statements ” means (i) the unaudited carve-out balance sheets of the Business as of December 31, 2015 and 2014, and (ii) the related unaudited carve-out statements of income, comprehensive income, cash flows and stockholders’ equity for the fiscal years then ended, and the related notes thereto.

1.1.3    “ 2016 Audited Financial Statements ” means (i) the audited carve-out balance sheets of the Business as of December 31, 2016 and 2015 and (ii) the related audited carve-out statements of income, comprehensive income, cash flows and stockholders’ equity for the fiscal years then ended, and the related notes thereto.

1.1.4    “ 2017 Unaudited Financial Statements ” means, as applicable, (i) the unaudited carve-out balance sheet of the Business as of each of March 31, June 30, and September 30, 2017, and (ii) the related unaudited carve-out statements of income,


[NEWYORK 3251393_44]


comprehensive income, cash flows and stockholders’ equity for each of the three-month, six-month and nine-month periods ended March 31, June 30, and September 30, 2017 and 2016, in each case with an auditor’s limited review in accordance with AU-722, Interim Financial Information .

1.1.5    “ Accounting Principles ” means the accounting principles, methodologies, procedures and policies followed in the calculation of the Working Capital Target set forth in Exhibit A and in the preparation of the underlying unaudited carve-out financial statements of the Business on which such calculations are based.

1.1.6    “ Action ” means any action, suit or proceeding, whether civil, criminal or administrative, that is brought by or before any Governmental Authority or before any arbitrator of competent jurisdiction.

1.1.7    “ Adjustment Escrow Account ” means the escrow account established by the Escrow Agent pursuant to the Escrow Agreement for purposes of holding the Adjustment Escrow Amount and any interest or earnings accrued thereon or in respect thereof.

1.1.8    “ Adjustment Escrow Amount ” means $3,600,000.

1.1.9    “ Affiliate ” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under common control with such specified Person. For purposes of this definition, the term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

1.1.10    “ Aftermarket ” means the secondary market of the automotive glass and other automotive parts industry concerned with the distribution and sale of automotive glass products (e.g., windshields and tempered glass) and other automotive products (e.g., fluids and adhesives) for installation in, or use with, an automobile, truck or van after the sale of such automobile, truck or van by the original equipment manufacturer or dealer to the customer.

1.1.11    “ AML Laws ” means any anti-money laundering or anti-terrorist financing law or regulation and any financial recordkeeping or reporting law or regulation.

1.1.12    “ Anticorruption Laws ” means (i) the U.S. Foreign Corrupt Practices Act of 1977, (ii) the U.K. Bribery Act of 2010, and (iii) any other law, rule or regulation relating to bribery or corruption.

1.1.13    “ Antitrust Laws ” means all antitrust, competition or trade regulation Legal Requirements of any Governmental Authority or Legal Requirements issued by any Governmental Authority that are otherwise designed or intended to prohibit, restrict


[NEWYORK 3251393_44]


or regulate actions or transactions having the purpose or effect of monopolization, restraint of trade or harm to competition.

1.1.14    “ As Agreed ” means, with respect to the Distributed ARG Business, that the ARG Business Distribution shall have been carried out pursuant to the actions specified in Exhibit G .

1.1.15    “ Audited Net Operating Income ” means the amount shown on the “income from operations” line item for the fiscal year ended December 31, 2015, in the 2015 Audited Financial Statements..

1.1.16    “ Auto Glass ” means PGW Auto Glass LLC, a Delaware limited liability company.

1.1.17    “ Base Purchase Price ” means an amount equal to $310,000,000 minus the Operating Income Adjustment, if any.

1.1.18    “ Board of Managers ” means the board of managers of the Company.

1.1.19    “ Business ” means the business of the Company and each Company Subsidiary as conducted during the periods covered by the Financial Statements and as of the date hereof (excluding the Distributed ARG Business), including (i) designing, developing, fabricating, producing, manufacturing and distributing (A) automotive glass, including windshields, backlites, sidelites and roof panels (whether laminated or tempered) and (B) other automotive products, including fluids and adhesives, in each case of (A) and (B) for the purpose of installation into or application onto automobiles, trucks and vans during original assembly or prior to or at the time of manufacture or sale of a vehicle to a consumer, (ii) sales of automotive windshield glass for Aftermarket installation or application to (A) Safelite Group Inc., Carlex Glass Company, LLC or their respective Affiliates, shipped directly from PGW’s facility located at 2290 Menelaus Road, Berea, Kentucky 40403 and (B) Auto Glass and (iii) sales of any carry-over parts for the Aftermarket pursuant to original equipment manufacturers supply award contracts and commitments with OEM Customers of the Company and the Company Subsidiaries.

1.1.20    “ Business Day ” means any day other than a Saturday, a Sunday or a day on which banking institutions are required or authorized to close in the City of New York, New York, Pittsburgh, Pennsylvania or Mexico City, Mexico.

1.1.21    “ Buyers ” means (i) at any time prior to the Company Acquisition, US Buyer and Mexican Buyer and (ii) at any time after the Company Acquisition, US Buyer, Mexican Buyer and PGW.

1.1.22    “ Canada Holdco ” means KPGW Canadian Holdco, LLC, a Delaware limited liability company and the direct parent of PGW Canada.

1.1.23    “ Cash ” means the aggregate amount of all cash and cash equivalents of the Company and the Company Subsidiaries relating to the Business, in each case,


[NEWYORK 3251393_44]


determined in accordance with GAAP and calculated using the same policies, principles and methodology used in connection with the preparation of the Financial Statements. For the avoidance of doubt, Cash (i) includes checks, wire transfers and drafts deposited for the accounts of the Company and the Company Subsidiaries but not yet cleared on the date of determination, but only to the extent that the accounts receivable with respect to such checks, wires and drafts have been reduced and are not reflected as a current asset in the calculation of the Working Capital Amount, (ii) excludes cash deposits made by the Company or any Company Subsidiary to third parties to secure obligations to such third parties, (iii) will not be decreased by the amount of outstanding and uncleared checks issued by the Company and the Company Subsidiaries as of the date of determination, provided the accounts payable with respect to such uncleared checks have not been reduced and are reflected as a current Liability in the calculation of the Working Capital Amount, and (iv) includes all cash held pursuant to the provision of ongoing transition services in connection with the July 29, 2014 disposition of the former insurance and services division of the Company and its Subsidiaries at the time of such disposition (the “ I&S TSA Cash ”).

1.1.24    “ Code ” means the Internal Revenue Code of 1986.

1.1.25    “ Collective Bargaining Agreement ” means any agreement, labor contract, amendment, addenda, side letter, letter or memorandum of understanding, voluntary recognition agreement or other binding commitment between the Company and the Company Subsidiaries and any labor organization representing current or former employees of the Company or any Company Subsidiary.

1.1.26    “ Company Cash Amount ” means the amount of Cash as of the Closing less the amount of any such Cash used by the Company and the Company Subsidiaries to repay Debt or pay Transaction Expenses or used by the Company to pay a dividend or make any other distribution in respect of the Company Interests, in any such case, prior to or at the Closing.

1.1.27    “ Company Joint Venture ” means each of Belletech Corporation, the Mexican JV and Shandong PGW Jinjing Automotive Glass Co.

1.1.28    “ Company Plan ” means any Employee Plan which is sponsored, maintained or contributed to solely by the Company or any of the Company Subsidiaries (excluding Auto Glass, PGW Canada and each Company Subsidiary based in Canada) primarily for the benefit of employees who are, or former employees who were, primarily devoted to the Business.

1.1.29    “ Company Subsidiary ” means any Subsidiary of the Company as of the date hereof other than Auto Glass, PGW Canada and Canada Holdco.

1.1.30    “ Contractual Obligation ” means, with respect to any Person, any contract, agreement (written or oral), deed, mortgage, lease, license, indenture, note, bond, loan or instrument to which or by which such Person is legally bound (including any document or instrument evidencing any indebtedness but excluding (i) any sales or


[NEWYORK 3251393_44]


purchase orders entered into in the ordinary course of business consistent with past practice (other than purchase orders with suppliers involving remaining purchase commitments in excess of $2,500,000), (ii) the Organizational Documents of such Person and (iii) any Company Plan).

1.1.31    “ Credit Agreement ” means the Fourth Amended and Restated Credit Agreement, dated January 29, 2016, by and among LKQ, LKQ Delaware LLP, and certain additional Subsidiaries of LKQ, as borrowers, certain financial institutions, as lenders, and the Issuer, as administrative agent.

1.1.32    “ Debt ” means, with respect to any Person, without duplication, all Liabilities (including all Liabilities in respect of principal, accrued interest, prepayment premiums, make-wholes, penalties, breakage costs, fees and premiums) of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of assets, property, goods or services (other than trade payables, accruals or similar Liabilities incurred in the ordinary course of business consistent with past practice), (iv) under leases under which such Person is the lessee that are or should be capitalized in accordance with GAAP, (v) for due and payable reimbursement obligations under drawn standby letters of credit, bankers acceptances or similar instruments or facilities, (vi) under any interest rate, currency or other hedging agreements, to the extent payable if terminated, (vii) currently due to Solera Holdings, Inc. or any of its Affiliates in respect of I&S TSA Cash, (viii) in the form of direct or indirect guarantees or other forms of credit support of obligations described in clauses (i) through (vii) above of any other Person. Notwithstanding the foregoing, Debt does not include (x) any intercompany obligations between or among the Company and the Company Subsidiaries, (y) any Liabilities related to pension or other post-employment retirement benefits of the Company or the Company Subsidiaries or (z) any amounts included in Working Capital, Transaction Expenses, or Pension Funding Adjustment Amount.

1.1.33    “ December 2016 Unaudited Financial Statements ” means (i) the unaudited carve-out balance sheet of the Business as of December 31, 2016 and (ii) the related unaudited carve-out statements of income, comprehensive income and cash flows for the 12-month periods ended December 31, 2016 and 2015, with an auditor’s limited review in accordance with AU-722, Interim Financial Information .

1.1.34    “ Distributed ARG Business ” means the business of Auto Glass, PGW Canada, Canada Holdco, the Company and each Company Subsidiary of selling and distributing (A) automotive replacement glass products, including windshields, backlites, sidelites and roof panels (whether laminated or tempered), including automotive replacement glass products with the stamp of the name or logo of OEM Customers set forth on Schedule 1.1.34 , provided that the revenues derived from sales to such OEM Customers are not included or accounted for in the Financial Statements or any of the financial statements to be provided to Buyers pursuant to Section ý7.12.2 , and (B) other automotive products, including fluids and adhesives, in the case of each of (A) and (B) for automobiles, trucks and vans for sale to any Person (including OEM Customers) solely for Aftermarket installation or application. For the avoidance of doubt, the


[NEWYORK 3251393_44]


Distributed ARG Business will not include sales to any Person (including OEM Customers) for the installation of automotive glass prior to, or at the time of, manufacture or sale of a vehicle to a consumer.

1.1.35    “ Distribution ” means, with respect to the capital stock of, membership interests of, partnership interests of or beneficial interests in any Person, (i) the declaration or payment of any dividend on or in respect of any shares or units of any class of such capital stock, membership interests, partnership interests or beneficial interests; (ii) the purchase, redemption or other retirement of any shares or units of any class of such capital stock, membership interests, partnership interests or beneficial interests, directly, or indirectly through a Subsidiary or otherwise; and (iii) any other distribution on or in respect of any shares or units of any class of such capital stock, membership interests, partnership interests or beneficial interests.

1.1.36    “ DLLCA ” means the Delaware Limited Liability Company Act.

1.1.37    “ Employee Plan ” means any (i) welfare benefit plan within the meaning of Section 3(1) of ERISA (whether or not subject to ERISA) (a “ Welfare Plan ”); (ii) Pension Plan; (iii) stock bonus, stock purchase, stock option, restricted stock, stock appreciation right or other equity or equity-based plan, program, policy, agreement or other arrangement; or (iv) other deferred or supplemental compensation, 401(k), profit sharing, termination indemnity, retirement, welfare-benefit, disability, bonus, incentive or fringe-benefit plan, vacation, severance, change in control, employment or retention plan, policy, agreement or other arrangement, including any such plan, policy, agreement or other arrangement in jurisdictions outside of the U.S.

1.1.38    “ Enforceable ” means, with respect to any Contractual Obligation, that such Contractual Obligation is the legal, valid and binding obligation of the Person in question, enforceable against such Person in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and general principles of equity (whether considered in an Action at law or in equity).

1.1.39    “ Environmental Law ” means any Legal Requirement regulating, imposing liability for, or establishing standards of conduct for pollution, the protection of the environment or natural resources, the protection of human health or safety in relation to exposure to Hazardous Substances, or emissions, discharges, releases, treatment, storage, disposal, arrangement for disposal, transportation, or handling of, or exposure to, any Hazardous Substances.

1.1.40    “ Equity Interest ” means, with respect to any Person, (i) any capital stock, partnership interest or membership interest or beneficial interest in such Person and (ii) any option, warrant, purchase right, conversion right, exchange right or other security or Contractual Obligation or Company Plan that would entitle any other Person to directly or indirectly acquire any such interest in such Person or otherwise entitle any other Person to share in the equity, profits, earnings, losses or gains of such Person (including stock appreciation, phantom stock, profit participation or other similar rights).


[NEWYORK 3251393_44]




1.1.41    “ ERISA ” means the Employee Retirement Income Security Act of 1974.

1.1.42    “ Escrow Agent ” means PNC Bank, National Association or another major commercial bank reasonably acceptable to Buyers.

1.1.43    “ Escrow Agreement ” means an escrow agreement substantially in the form of Exhibit B .

1.1.44    “ Export Control and Sanctions Laws ” means any applicable export, re-export, or economic sanctions laws or regulations of the United States or any other jurisdictions, including those administered by the U.S. Department of Commerce, U.S. Department of the Treasury, U.S. Department of Energy, U.S. Nuclear Regulatory Commission and U.S. Department of State.

1.1.45    “ Financing Sources ” means the agents, arrangers, lenders and other Persons that have committed to provide or arrange, or have otherwise entered into agreements in connection with, the Financing or any alternative financing to consummate the Transactions, including the parties to any joinder agreements, indentures, purchase agreements or credit agreements entered into pursuant thereto or relating thereto, together with their respective Affiliates, officers, directors, employees, agents, trustees and representatives involved in the Financing and their respective successors and assigns.

1.1.46    “ GAAP ” means generally accepted accounting principles in the United States as in effect from time to time, consistently applied.

1.1.47    “ Governmental Authority ” means any domestic or foreign, federal, state, or local government or governmental authority, quasi-governmental authority, department, bureau, agency or official, including any political subdivision thereof, or any court of competent jurisdiction.

1.1.48    “ Governmental Order ” means any ruling award, decision, injunction, judgment, order, decree or subpoena entered, issued or made by any Governmental Authority.

1.1.49    “ Gross Profit Margin ” means the gross profit percentage calculated consistent with past practice using the same principles and methodology used in connection with the preparation of the Financial Statements.

1.1.50    “ Guarantee ” means (i) any guarantee of the payment or performance of any Debt of any other Person, (ii) any other arrangement whereby credit is extended to one obligor on the basis of any Contractual Obligation of another Person (A) to pay the Debt of such obligor, (B) to purchase any obligation owed by such obligor, or (C) to maintain the capital, working capital, solvency or general financial condition of such obligor, and (iii) any liability as a general partner of a partnership or as a venturer in a joint venture in respect of Debt of such partnership or joint venture.


[NEWYORK 3251393_44]



1.1.51    “ Hazardous Substance ” means any chemical, pollutant or contaminant, any toxic, dangerous, radioactive or hazardous (or words of similar import) material, substance or waste, whether solid, liquid or gas, or any solid waste, that is regulated, defined, characterized, designated, or for which standards of care are established, under Environmental Law, including petroleum, petroleum-containing products and asbestos in any form.

1.1.52    “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

1.1.53    “ Indentures ” means (i) the Indenture, dated May 9, 2013, among LKQ, certain of LKQ’s Subsidiaries and U.S. Bank National Association, as trustee and (ii) the Indenture, dated as of April 14, 2016, among LKQ Italia Bondco S.p.A., LKQ and certain of LKQ’s Subsidiaries, BNP Paribas Trust Corporation UK Limited, as trustee and BNP Paribas Securities Services, Luxembourg Branch, as paying agent, transfer agent and registrar.

1.1.54    “ Intellectual Property ” means all of the following in any jurisdiction in the world, whether registered or unregistered: (i) patents, patent applications, utility models and design rights, and any provisionals, continuations, divisionals, continuations-in-part, re-examinations, renewals or reissues of the foregoing, and any foreign counterparts thereof, and any inventions and invention disclosures, whether or not patentable; (ii) trade names, trademarks, service marks, brand names, logos, slogans, trade dress, social media handles and internet domain names, and all other indicia of origin, and all related registrations and applications for registration and renewals thereof together with all of the goodwill associated therewith (“ Trademarks ”); (iii) copyrights, together with all registrations and applications relating thereto; (iv) trade secrets, technical specifications, designs, drawings, technology, Software, know-how, processes, methods, protocols, formulae, research and development data and other proprietary confidential information; and (v) other intellectual property and similar proprietary rights, interests and protections (including all rights to sue and recover and retain damages, costs and attorneys’ fees for past, present and future infringement and any other rights relating to any of the foregoing).

1.1.55    “ Intellectual Property Agreement ” means an intellectual property agreement in the form of Exhibit E that shall be effective at Closing.

1.1.56    “ Intercompany Accounts ” means all balances related to indebtedness, including any intercompany indebtedness, loan, guaranty, receivable, payable or other account (other than trade payables and receivables) between an LKQ Group Member on the one hand, and the Company and the Company Subsidiaries, on the other hand.

1.1.57    “ Issuer ” means Wells Fargo Bank, National Association.

1.1.58    “ Knowledge of Buyers ” (and similar formulations) means the actual knowledge after reasonable investigation of Claudio del Valle Cabello or Baldomero Gardea de la Fuente.


[NEWYORK 3251393_44]



1.1.59    “ Knowledge of the Company ” (and similar formulations) means the actual knowledge after reasonable investigation of Jeffrey Gronbeck, Joseph Stas, Gerald Postlethwaite, Terry Wolfe, Paolo Cavallari, Jennifer Eck or John Yarowenko; provided that if the phrase “actual knowledge” is used in this Agreement, the text “after reasonable investigation” appearing above shall be disregarded for such purposes.

1.1.60    “ Legal Requirement ” means any domestic or foreign, federal, state or local constitution, treaty, statute, law, ordinance, code, duty, common law doctrine, rule or regulation, or any Governmental Order, or any license, consent, approval, permit or similar right granted by any Governmental Authority under any of the foregoing.

1.1.61    “ Liability ” means any liability or other similar obligation (whether known or unknown, asserted or unasserted, fixed, absolute or contingent, matured or unmatured, determined or determinable, accrued or unaccrued, liquidated or unliquidated).

1.1.62    “ Lien ” means any mortgage, pledge, lien, security interest, attachment, claim, deed of trust, title defect, easement, right of way, covenant, encroachment, servitude or other similar encumbrance; provided , however , that the term “Lien” will not include (i) liens for Taxes not yet due and payable or the amount or validity of which is being contested in good faith as previously disclosed to Buyer; (ii) encumbrances in the nature of zoning restrictions, easements, rights or restrictions of record on the use of real property if the same do not materially impair the continued use of such property in the Business in the manner in which it is currently used, but excluding in all events any Liens securing the payment of money; (iii) liens to secure landlords, lessors or renters under leases or rental agreements; (iv) deposits or pledges made in connection with, or to secure payment of, worker’s compensation, unemployment insurance, old age pension programs mandated under applicable Legal Requirements or other social security regulations; (v) liens in favor of carriers, warehousemen, mechanics and materialmen, liens to secure claims for labor, materials or supplies and other similar liens which do not materially impair the continued use of such property in the Business in the manner in which it is currently used or the market value of such property; (vi) solely for purposes of Section 4.9.1 , Intellectual Property licenses; or (vii) restrictions on transfer of securities imposed by applicable state and federal securities laws.

1.1.63    “ LKQ Group Member ” means each of LKQ and its Subsidiaries (other than the Company and the Company Subsidiaries).

1.1.64    “ LKQ Insurance Policies ” means the Insurance Policies identified under the LKQ Corporation heading on Schedule 4.12 and related administrative programs.

1.1.65    “ Loss ” means all actual losses, damages, costs and expenses, fines, assessments, penalties, offsets, or other charges of any kind, including reasonable and documented attorneys’ fees and the cost of enforcing any explicit right to indemnification hereunder.


[NEWYORK 3251393_44]



1.1.66    “ Marketing Efforts ” means the direct and reasonable assistance of or participation by the Company’s senior management team in Buyers’ preparation of the Marketing Material and sessions with rating agencies, to the extent required under the Debt Documents.

1.1.67    “ Marketing Material ” means customary bank books regarding the business, operations, financial condition, projections and prospects of the Business for financing of the type contemplated by the Debt Documents, including all information relating to the Transactions.

1.1.68    “ Material Adverse Effect ” means any change, event, fact, circumstance, development, effect or occurrence (each, an “ Effect ”) that, individually or in combination with any other Effect, is or would reasonably be expected to (a) prevent, or materially impede, the ability of the Company or any Seller to perform its obligations under this Agreement, or to consummate the Acquisition and the other Transactions; or (b) be materially adverse to the business, assets, properties, financial condition or results of operations of the Company and the Company Subsidiaries (excluding the Distributed ARG Business), taken as a whole; provided , however , that the term “Material Adverse Effect” will not include or take into account any Effect to the extent that such Effect is caused by, arises out of or results from: (i) changes in Legal Requirements or interpretations thereof by courts or other Governmental Authorities, (ii) changes or proposed changes in GAAP, (iii) actions or omissions of the Company or any Company Subsidiary taken with the consent of Buyers or actions or omissions of the Company or any Company Subsidiary required (pursuant to affirmative or negative covenants) or expressly contemplated by this Agreement (other than compliance with the obligation to operate in the ordinary course of business), (iv) changes in the general economic conditions, including changes in the credit, debt, financial, capital, currency, insurance or reinsurance markets (including changes in interest or exchange rates, prices of any security or market index or any disruption of such markets), in each case in the United States or anywhere else in the world, (v) events or conditions generally affecting the industries in which the Company or any Company Subsidiary operate, (vi) global, national or regional political conditions, including national or international hostilities, acts of terror or acts of war, sabotage or terrorism or military actions or any escalation or worsening of any hostilities, acts of war, sabotage or terrorism or military actions, (vii) pandemics, earthquakes, hurricanes, tornados or other natural disasters, (viii) the announcement, pendency or consummation of this Agreement or the Transactions or the identity of Buyers and the impact of any of the foregoing on relationships with customers, suppliers or employees ( provided , that this clause (viii) shall be disregarded for purposes of determining whether a breach of a representation or warranty contained in Sections 4.3 or 5.3 or any other representation and warranty relating to required consents or approvals, change in control provisions or similar provisions granting rights of acceleration, termination, modification or waiver based upon entering into this Agreement or the consummation of the Transactions has had or would reasonably be expected to have a Material Adverse Effect), (ix) any change in the Company’s or any Company Subsidiary’s credit ratings, (x) any failure to meet any internal projections, forecasts, guidance, estimates, milestones, budgets or internal financial or operating predictions of revenue, earnings, cash flow or cash position, or (xii) events or conditions


[NEWYORK 3251393_44]



generally affecting the Distributed ARG Business but not the Business ( provided , that (A) the matters described in clauses (i), (ii), (iv), (v), (vi) and (vii) shall be included and taken into account in the term “Material Adverse Effect” to the extent any such matter has a materially disproportionate adverse impact on the business, assets, financial condition or results of operations of the Company and the Company Subsidiaries taken as a whole, relative to other participants in the industries in which they operate and (B) clauses (ix) and (x) will not prevent a determination that any change or effect underlying any such change or failure, as applicable, has resulted in a Material Adverse Effect, to the extent such change or effect is not otherwise excluded from this definition of Material Adverse Effect).

1.1.69    “ OEM Customers ” means customers that are original equipment manufacturers of vehicles.

1.1.70    “ Off-the-Shelf Software ” means software obtained from a third party (i) or standard terms that continue to be widely available, (ii) that is not distributed with or incorporated in any product of the Company or a Company Subsidiary, and (iii) that was licensed for fixed payments that are expected to be less than $250,000 in fiscal year 2016 and less than $1,000,000 over the remaining term.

1.1.71    “ Operating Income Adjustment ” means the amount equal to the product of the amount, if any, by which Unaudited Net Operating Income exceeds Audited Net Operating Income, multiplied by 5.5; provided that, if Audited Net Operating Income is $27,000,000 or greater, the Operating Income Adjustment shall be zero.

1.1.72    “ Organizational Documents ” means, with respect to any Person (other than an individual), the certificate or articles of incorporation, formation or organization of such Person and any limited liability company, operating or partnership agreement, by-laws, charter or similar documents or agreements relating to the legal organization of such Person.

1.1.73    “ Parties ” means Buyers, Sellers and solely for the purposes of Section 13 , Vitro, Vitro Assets Corp. and LKQ.

1.1.74    “ Pension Funding Adjustment Amount ” means an amount equal to (a) the unfunded Liability as of the Closing Date of the Company and the Company Subsidiaries with respect to the PGW RIP for the Company Employees and former employees providing services to the Business that are covered under the “OEM” and “Corporate” headings in the September 30, 2016 Disclosure Information Under ASC 715 report prepared by Prudential and attached as Exhibit F (the “ Prudential Report ”) minus (b) $15,000,000 (it being understood and agreed that any such Company Employees and former employees not so covered shall be deemed ARG Employees or Former ARG Employees, as applicable, for purposes of Section 7.14.8 ). Such amount shall be calculated in accordance with GAAP and the accounting principles, methodologies, procedures and policies used in calculating the unfunded Liability amounts set forth under the “Funded Status at September 30, 2016” row in the Prudential Report.


[NEWYORK 3251393_44]



1.1.75    “ Pension Plan ” means a pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not subject to ERISA).

1.1.76    “ Permitted ARG Business ” means the business of selling and distributing (A) automotive replacement glass products, including windshields, backlites, sidelites and roof panels (in each case whether laminated or tempered), including automotive replacement glass products with the stamp of any OEM Customer’s name or logo, provided , that such OEM Customers have agreed or provided their consent for the use of such names or logos, and (B) other automotive products, including fluids and adhesives, in the case of each of (A) and (B) for automobiles, trucks and vans for sale to any Person (including OEM Customers) solely for Aftermarket installation.  For the avoidance of doubt, the Permitted ARG Business will not include sales to any Person (including OEM Customers) for the installation of automotive glass prior to, or at the time of, manufacture or sale of a vehicle to a consumer.

1.1.77    “ Person ” means any individual, partnership, corporation, limited liability company, association, trust, joint venture, unincorporated organization or other entity or organization including any Governmental Authority.

1.1.78    “ PGW Insurance Policies ” means the Insurance Policies identified under the “Pittsburgh Glass Works, LLC Casualty Policies” heading on Schedule 4.12 and related administrative programs.

1.1.79    “ Pre-Closing Tax Period ” means any Tax period ending on or before the Closing Date and the portion through the end of the Closing Date for any Tax period that includes (but does not end on) the Closing Date.

1.1.80    “ Public Software ” means any software that contains, or is derived (in whole or in part) from any software that is distributed as free software, open source software or under similar licensing or distribution models, or that requires that the software covered by the license or any software incorporated into, based on, derived from or distributed with such software (a) be disclosed, distributed or made available in source code form or (b) be licensed under the terms of any open source software license, including software licensed or distributed under any of the following licenses or distribution models or licenses or distribution models similar to any of the following: (i) the GNU General Public License (GPL), Lesser GPL (LGPL), or Affero GPL (AGPL), (ii) the Artistic License, (iii) the Mozilla Public License, (iv) the Netscape Public License, (v) the Sun Community Source License (SCSL), (vi) the BSD License, (vii) the Apache License and (viii) any other license listed by the Open Source Initiative at www.opensource.org/licenses/alphabetical .

1.1.81    “ Release ” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata).


[NEWYORK 3251393_44]



1.1.82    “ Representatives ” means, with respect to a Person, such Person’s directors, officers, employees, agents, attorneys, accountants, investment bankers and other appropriate representatives.

1.1.83    “ Required Information ” means (i) the 2015 Audited Financial Statements and the September 2016 Unaudited Financial Statements; (ii) the 2016 Audited Financial Statements to the extent required to have been delivered to Buyers pursuant to Section 7.12.2.2 and (iii) the 2017 Unaudited Financial Statements to the extent required to have been delivered to Buyers pursuant to Section 7.12.2.3 , as applicable.

1.1.84    “ Seller Plan ” means any Employee Plan which is sponsored, maintained or contributed to by any Seller, the Company or any of the Company Subsidiaries other than the Company Plans.

1.1.85    “ Sellers ” means (i) at any time prior to Closing, Holdings, PGW, European Holdco and PGW Canada, and (ii) at any time after Closing, Holdings and PGW Canada.

1.1.86    “ September 2016 Unaudited Financial Statements ” means (i) the unaudited carve-out balance sheet of the Business as of September 30, 2016, and (ii) the related unaudited carve-out statements of income, comprehensive income and cash flows for the nine-month periods ended September 30, 2016 and 2015, with an auditor’s limited review in accordance with AU-722, Interim Financial Information .

1.1.87    “ Software ” means, as they exist anywhere in the world, computer software programs, including all source code, object code, specifications, databases, designs and documentation related to such programs.

1.1.88    “ Straddle Period ” means any Tax period beginning on or before the Closing Date and ending after the Closing Date.

1.1.89    “ Subsidiary ” means any Person of which the Company (or other specified Person) owns, directly or indirectly through a subsidiary or otherwise, at least a majority of the outstanding capital stock (or other shares or units of membership, partnership or beneficial interest) entitled to vote generally or otherwise having the power to elect a majority of the board of directors or similar governing body of such Person or the legal power to direct the business or policies of such Person.

1.1.90    “ Supply Agreement ” means a supply agreement in the form of Exhibit C (other than certain schedules that are substantially in the form of and are to be finalized pursuant to Section 7.24 ) that shall be effective at Closing.

1.1.91    “ Tax ” means any federal, state, local or non-U.S. income, gross receipts, franchise, withholding, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, severance, stamp, occupation, premium, windfall profit, custom, duty, real property, personal property, capital stock, social security, employment, unemployment, disability, payroll, license, employee or other tax,


[NEWYORK 3251393_44]


impost, duty, charge, similar fee or levy of any kind whatsoever, however denominated or computed, and in respect of each and every of the foregoing, including all interest, penalties and additions to tax with respect thereto, whether disputed or not.

1.1.92    “ Tax Authority ” means a Governmental Authority responsible for Tax administration or Tax collection.

1.1.93    “ Tax Matter ” means any inquiry, claim, assessment, audit, or administrative or judicial proceeding, in each case with respect to Taxes relating to a Pre-Closing Tax Period.

1.1.94    “ Tax Return ” means any U.S. federal, state, local and non-U.S. return, report, statement, form or information required to be filed or maintained with a Tax Authority relating to any Tax, and any schedule or attachment thereto or amendment thereof.

1.1.95    “ Total Equity Value ” means an amount equal to (a) the Base Purchase Price minus (b) the sum of (i) the Transaction Expenses, (ii) the Debt of the Company and the Company Subsidiaries as of the Closing, (iii) the Adjustment Escrow Amount, and (iv) the Pension Funding Adjustment Amount, plus (c) the Company Cash Amount, plus (d) the amount, if any, by which the Working Capital Amount exceeds the Working Capital Target or minus (e) the amount, if any, by which the Working Capital Amount is less than the Working Capital Target, subject to adjustments pursuant to Sections 3.5 and 3.6 .

1.1.96    “ Transaction Documents ” means this Agreement, the Escrow Agreement, the Intellectual Property Agreement, the Transition Services Agreement, the Supply Agreement, and any other document, certificate, Contractual Obligation, or deliverable executed by the Company, Sellers or Buyers (or their applicable Affiliates) that is expressly identified as a “Transaction Document” hereunder, and any exhibits, attachments and schedules to any of the foregoing.

1.1.97    “ Transaction Expenses ” means the aggregate amount required to pay in full: (i) the fees and expenses of professionals (including investment bankers, attorneys, accountants and other consultants and advisors) retained by the Company and the Company Subsidiaries in connection with the Transactions, in each case to the extent incurred and not paid prior to the Closing, and (ii) any retention, transaction bonuses, severance or other similar payments to any director, officer, employee or contractor of the Company or any Company Subsidiary approved by the Company or the Company Subsidiaries prior to the Closing that become payable solely as a result of the Transactions (and not as result of any termination of employment or service occurring after the Closing), (together with all employment Taxes thereon payable by the Company or a Company Subsidiary) that are not paid prior to the Closing.

1.1.98    “ Transactions ” means, collectively, the Acquisition and the other transactions (other than the ARG Business Distribution) contemplated by this Agreement and the other Transaction Documents.



[NEWYORK 3251393_44]



1.1.99    “ Transition Services Agreement ” shall mean a reverse transition services agreement in the form of Exhibit D that shall be effective at Closing.

1.1.100 “ Unaudited Net Operating Income ” means $27,813,000.

1.1.101 “ Uncontested Claims ” means any Direct Claims for Losses to which an Indemnifying Party shall not have objected in writing pursuant to Section 10.5.2 within 30 days following actual receipt of such notice properly delivered pursuant to Section 10.5.2 .

1.1.102 “ Working Capital ” means (i) the current assets of the Company and the Company Subsidiaries, minus (ii) the current Liabilities of the Company and the Company Subsidiaries, in each case, (A) taking into account the ARG Business Distribution that shall have occurred prior to Closing, (B) determined in accordance with GAAP (except as explicitly set forth on the calculation of the Working Capital Target set forth in Exhibit A ) and calculated using the same policies, principles and methodologies used in connection with the preparation of the Financial Statements except, in each case, to the extent otherwise specified in, or prescribed by the calculation methodologies set forth in, the Accounting Principles and (C) calculated as of the close of business on the day immediately preceding the Closing Date. For the avoidance of doubt, Working Capital shall be calculated exclusive of Cash and amounts reflecting accruals with respect to Debt, income Taxes, Transaction Expenses or Bonuses and shall include any receivable owed by the China Joint Venture to the Company or any Company Subsidiary as of the date hereof.

1.1.103 “ Working Capital Amount ” means the Working Capital as of the close of business on the Business Day immediately prior to the Closing Date.

1.1.104 “Working Capital Target” means $84,684,903.

1.2     Certain Matters of Interpretation and Construction . In addition to the definitions referred to or set forth in this Section 1 :

1.2.1    Except as otherwise indicated, all references in this Agreement to “Sections,” “Schedules” and “Exhibits” are intended to refer to Sections of this Agreement and Schedules and Exhibits to this Agreement.

1.2.2    The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein.

1.2.3    Any capitalized terms used in the Schedules and Exhibits referred to herein but not otherwise defined therein shall be defined as set forth in this Agreement unless the context otherwise requires.

1.2.4    The words “hereof,” “herein,” “hereby,” “hereto” and “hereunder” and words of similar import will refer to this Agreement as a whole and not to any particular


[NEWYORK 3251393_44]


Section or provision of this Agreement and reference to a particular Section of this Agreement will include all subsections thereof.

1.2.5    The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other item extends and shall not simply mean “if.”

1.2.6    The word “any” shall mean “any and all.”

1.2.7    The word “or” is used in the inclusive sense of “and/or.”

1.2.8    Reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented and modified in effect from time to time in accordance with its terms.

1.2.9    Reference to any Legal Requirement means such Legal Requirement as amended from time to time and includes any successor legislation thereto and any rules and regulations promulgated thereunder.

1.2.10    Definitions will be equally applicable to both the singular and plural forms of the terms defined, and references to the masculine, feminine or neutral gender will include each other gender.

1.2.11    The words “include,” “includes” or “including” shall be deemed to be followed by “without limitation.”

1.2.12    “Dollars” and “$” means United States dollars.

1.2.13    Whenever this Agreement states that the Company has “made available” any document to Buyers, such statement means that such document was (i) delivered to Buyers or (ii) posted to the electronic data room for “Project Lasik” run by RR Donnelley Venue, in each case on or before the date that is two Business Days prior to the date hereof and not removed on or prior to such date.

2.     THE ACQUISITION.


2.1     Purchase and Sale of Mexican JV Shares . On the terms and subject to the conditions set forth in this Agreement, at the Closing, PGW shall sell, assign, transfer and convey to Mexican Buyer, and Mexican Buyer shall purchase, acquire and accept from PGW, the Mexican JV Shares, free and clear of all Liens.

2.2     Purchase and Sale of PGW Luxembourg Interest . On the terms and subject to the conditions set forth in this Agreement, at the Closing, European Holdco shall sell, assign, transfer and convey to Mexican Buyer, and Mexican Buyer shall purchase, acquire and accept from European Holdco, the PGW Luxembourg Interests, free and clear of all Liens.

2.3     Purchase and Sale of Company Interests . Immediately following the Subsidiary Acquisition, on the terms and subject to the conditions set forth in this Agreement, at the


[NEWYORK 3251393_44]


Closing, Holdings shall sell, assign, transfer and convey to US Buyer, and US Buyer shall purchase, acquire and accept from Holdings, the Company Interests, free and clear of all Liens.

2.4     Purchase and Sale of Canadian Assets and Assumption of Related Liabilities .      Immediately following the Company Acquisition, on the terms and subject to the conditions set forth in this Agreement, at the Closing, PGW Canada shall sell, assign, transfer and convey to PGW, and PGW shall purchase, acquire, accept and assume from PGW Canada, the accounts receivable of PGW Canada relating to the OEM Business as of the Closing (after netting out any intercompany accounts receivables and accounts payable of PGW Canada for the OEM Business) (the “ Canadian Assets ”), free and clear of all Liens, and the accounts payable of PGW Canada for the OEM Business as of the Closing.

2.5     Closing . Subject to the provisions of Section 8 and Section 9 , the closing of the Acquisition (the “ Closing ”) will take place at 10:00 a.m. Central Time at the offices of K&L Gates LLP located at 70 West Madison Street, Chicago, Illinois 60602 on the fifth Business Day following the day on which the conditions set forth in Section 8 and Section 9 (other than those conditions that by their nature are to be fulfilled at the Closing, but subject to the fulfillment or waiver of such conditions) have been fulfilled or waived in accordance with this Agreement or at such other place and time or on such other date as Buyers and Sellers may agree in writing. The date on which the Closing is actually held is referred to herein as the “Closing Date.” The Closing shall be deemed effective as of 12:01 a.m. Central Time on the Closing Date.

2.6     Tax Treatment . The Parties intend that the Company Acquisition shall be treated for U.S. federal and applicable state income Tax purposes as a purchase and sale of the assets and Liabilities of the Company. Buyers, Sellers, the Company and each Company Subsidiary each agree to file (and cause their Affiliates to file) their respective U.S. Tax Returns in a manner consistent with this Section 2.6 , unless otherwise required by applicable Legal Requirements.


3.    PURCHASE PRICE.

3.1     Purchase Price . In consideration for the sale, assignment, transfer and conveyance of the PGW Luxembourg Interests, the Mexican JV Shares, the Canadian Assets and the Company Interests, Buyers shall pay to Sellers (a) at the Closing, the Estimated Total Equity Value, and (b) after the Closing, an amount equal to (i) any amounts payable to Sellers under Section 3.5 or Section 3.6 and (ii) any portion of the Adjustment Escrow Amount released to Sellers pursuant to the terms of this Agreement and the Escrow Agreement.

3.2     Payments at Closing . Upon the terms and subject to the conditions set forth in this Agreement, Buyers will deliver or cause to be delivered on the Closing Date and at the Closing:

3.2.1    to the Escrow Agent, by wire transfer of immediately available funds to the Adjustment Escrow Account, the Adjustment Escrow Amount, to be held by the Escrow Agent under the Escrow Agreement pursuant to the terms and conditions thereof;

3.2.2    to the Persons to whom such amounts are payable, by wire transfer of immediately available funds to bank accounts that have been designated in writing by the Company to Buyers at least three Business Days prior to the Closing Date


[NEWYORK 3251393_44]



(or bank accounts designated in any applicable invoices with respect thereto), the amounts necessary to pay all Transaction Expenses not paid prior to the Closing Date ( provided that the amount of any transaction bonus or similar payments to any employees of the Company or any Company Subsidiary, if any, shall be paid to an account of the Company designated in writing by the Company to Buyers at least three Business Days prior to the Closing Date and paid to the applicable employees, in each case, subject to Section 3.7 , through the Company’s payroll system in a distribution to occur on the Closing Date or as soon as practicable thereafter); and

3.2.3    to Sellers, by wire transfer of immediately available funds to a bank account thereof that has been designated in writing to Buyers by Sellers at least three Business Days prior to the Closing Date, subject to Section 3.7 , an amount equal to the Estimated Total Equity Value.


3.3     Closing Estimates . Not earlier than five Business Days, and not later than three Business Days prior to the anticipated Closing Date, Sellers shall furnish to Buyers a written statement (the “ Estimated Closing Statement ”) duly executed by the Chief Financial Officer of the Company (solely in his capacity as such) setting forth in reasonable detail good faith estimates of (a) the Transaction Expenses as of the Closing, (b) the Debt of the Company and the Company Subsidiaries as of the Closing, (c) the Pension Funding Adjustment Amount as of the Closing, (d) the Working Capital Amount, and (e) the Company Cash Amount, and based on such estimates, an estimate of the Total Equity Value (the “ Estimated Total Equity Value ”). The Estimated Closing Statement and the determinations and calculations contained therein shall be based on the books and records of the Company and the Company Subsidiaries and shall be prepared in accordance with this Agreement and, in the case of the estimated Closing Working Capital Amount, the Accounting Principles. To the extent reasonably requested by Buyers, Sellers will make available to Buyers and their auditors and advisors all books, records, documents, work papers and other information of the Company and the Company Subsidiaries used in preparing the Estimated Closing Statement (including participant census data and selected information). The Estimated Closing Statement and the determinations and calculations contained therein (including the estimated Working Capital Amount) will be prepared and determined, as applicable, in accordance with Section 3.4 , as if it were the actual Closing Statement or Closing Working Capital Amount, as applicable, but based on the review of the financial information of the Company then reasonably available and inquiries of personnel responsible for the preparation of such financial information in the ordinary course of business.

3.4     Post-Closing Adjustment Determination . As soon as practicable (and in no event later than 120 days after the Closing Date), Buyers will prepare and furnish to Sellers a written statement (the “ Closing Statement ”) setting forth in reasonable detail Buyers’ calculations of the actual amounts of each of: (a) the Transaction Expenses as of the Closing (the “ Final Transaction Expenses ”), (b) Debt of the Company and the Company Subsidiaries as of the Closing (the “ Closing Debt ”), (c) the Pension Funding Adjustment Amount as of the Closing (the “ Final Pension Funding Adjustment Amount ”), (d) the Working Capital Amount (the “ Closing Working Capital Amount ”), and (e) the Company Cash Amount (the “ Closing Cash ”), and based on such amounts, the Total Equity Value. The Closing Statement and the determinations and calculations contained therein will be prepared and determined in accordance with this Agreement and, in the case of the Closing Working Capital Amount, the Accounting



[NEWYORK 3251393_44]


Principles. Buyers will permit the Company’s current Chief Financial Officer (to the extent he continues to be an employee of the Company) to assist Buyers’ accounting team in preparing the Closing Statement. The Closing Statement and the determinations and calculations contained therein shall be based on the books and records of the Company and the Company Subsidiaries. In connection with the review of the Closing Statement, Buyers will provide Sellers and their representatives and advisors with reasonable access to the personnel, books, records, documents, work papers and other information of Buyers, the Company and the Company Subsidiaries used in the preparation of the Closing Statement.

3.4.1    The Closing Statement and the determinations and calculations contained therein (including the Closing Working Capital Amount) will be final, conclusive and binding on the Parties unless Sellers provide a written notice (a “ Dispute Notice ”) to Buyers no later than 60 days after delivery to Sellers of the Closing Statement setting forth in reasonable detail (i) any item on the Closing Statement which Sellers believe has not been prepared in accordance with this Agreement and (ii) Sellers’ proposed determination of the correct amount of such item in accordance with this Agreement. Any item or amount with respect to which no dispute is raised in the Dispute Notice will be final, conclusive and binding on the Parties.

3.4.2    If Buyers and Sellers cannot agree on any items raised in the Dispute Notice in good faith within 30 days after Buyers’ receipt of the Dispute Notice, the Parties will submit their final calculations of the items in dispute to Ernst & Young LLP or, in the event that Ernst & Young LLP declines or is unable to accept such engagement, to an arbitrator who (i) is a certified public accountant (with significant public accounting experience, including in the context of business combinations), (ii) has not provided services to either Sellers or Buyers or to their respective Subsidiaries in the preceding three years, and (iii) is appointed by agreement of Buyers and Sellers or, failing such agreement within such 30-day period, by either Party or both Parties jointly requesting appointment of an arbitrator by the American Arbitration Association (“ AAA ”) in accordance with its Commercial Arbitration Rules as in effect on the date of this Agreement (the “ Arbitration Rules ”), provided , that such AAA-appointed arbitrator shall have the qualifications in clauses (i) and (ii) of this sentence (Ernst & Young LLP or such other Person appointed in accordance with this sentence, the “ Arbitrator ”). The Arbitrator will review such items in dispute and make a determination as to the correct amount in accordance with this Agreement, and based on such amounts, the Total Equity Value. In deciding any matter, (i) the Arbitrator shall be bound by the terms and conditions of this Agreement, including the definitions of Debt, Transaction Expenses, Pension Funding Adjustment Amount, Company Cash Amount, Working Capital, Working Capital Amount and the Accounting Principles, and (ii) the Arbitrator’s determinations will in no event result in any element of the Total Equity Value being greater than the higher of the values assigned thereto by Buyers or Sellers or lesser than the lesser of the values assigned thereto by Buyers or Sellers. The decision of the Arbitrator will be made in accordance with the Arbitration Rules and the terms of this Agreement. The decision of the Arbitrator will be made within 30 days after the Arbitrator is engaged, or as soon thereafter as reasonably practicable, and will be final, conclusive and binding on the Parties, absent fraud or manifest error by the Arbitrator, and judgment thereon may be entered by any court of competent jurisdiction. Buyers, on



[NEWYORK 3251393_44]


the one hand, and Sellers, on the other hand, shall (a) pay their own respective costs and expenses incurred in connection with this Section 3.4 , and (b) bear that percentage of the fees and expenses of the Arbitrator equal to the proportion of the total Dollar value of all disputed amounts submitted to the Arbitrator that is determined in favor of the other Party by the Arbitrator. Buyers, on the one hand, and Sellers, on the other hand, will make available to the Arbitrator all relevant personnel, books, records and work papers relating to the calculations submitted that are reasonably requested by the Arbitrator.

3.5     Adjustments to Purchase Price . Upon the final determination of the Closing Working Capital Amount, the Closing Debt, Final Transaction Expenses, the Final Pension Funding Adjustment Amount, and the Closing Cash, the consideration payable hereunder to Sellers in respect of the Acquisition will be adjusted as follows:

3.5.1    If the Total Equity Value exceeds the Estimated Total Equity Value (the amount by which it is greater, if any, the “ Increase Amount ”), then Buyers shall, within five Business Days of the final determination of the Total Equity Value pursuant to Section 3.4 , pay (or caused to be paid) by wire transfer of immediately available funds to Sellers such Increase Amount.

3.5.2    If the Total Equity Value is less than the Estimated Total Equity Value (the amount by which it is less, the “ Deficit Amount ”), then, within five Business Days of the final determination of the Total Equity Value pursuant to Section 3.4 , Buyers and Sellers shall execute and deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to pay to Buyers an amount equal to the Deficit Amount from the Adjustment Escrow Amount (or the entire Adjustment Escrow Amount if the Deficit Amount exceeds the Adjustment Escrow Amount). In the event that the Deficit Amount exceeds the Adjustment Escrow Amount (the portion thereof in excess of the Adjustment Escrow Amount, the “ Excess Deficit Amount ”), Sellers shall pay by wire transfer of immediately available funds to Buyers the Excess Deficit Amount. If the Deficit Amount is less than the Adjustment Escrow Amount, contemporaneously with the distribution of funds to Buyers from the Adjustment Escrow Account contemplated by this Section 3.5.2 , the remainder of funds then held in the Adjustment Escrow Account shall be distributed to Sellers, and Buyers and Sellers shall provide for such release in the joint written instructions to the Escrow Agent delivered pursuant to this Section 3.5.2 .

3.5.3    If the Total Equity Value equals or exceeds the Estimated Total Equity Value, then, within five Business Days of the final determination of Total Equity Value pursuant to Section 3.4 , Buyers and Sellers shall execute and deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to pay to Sellers all funds then held in the Adjustment Escrow Account.

3.5.4    Any payment in respect of the adjustment(s) (if any) required to be made pursuant to this Section 3.5 will be treated as an adjustment to the purchase price (as determined for Tax purposes).

3.6     Deferred Consideration .



[NEWYORK 3251393_44]



3.6.1    If on or prior to the Closing Date, the Company has entered into an additional Contractual Obligation (as such Contractual Obligation may be replaced) for the sale of automotive glass products with the specific OEM Customer disclosed as of the date hereof, (the “ New OEM Agreement ”) that (x) provides for sales, the revenue from which was not included in any sales forecast of the Company or the Company Subsidiaries provided by Sellers to Buyers prior to the date hereof, (y) provides for a firm commitment of the counterparty thereto to purchase automotive glass products from the Company or any Company Subsidiary and (z) reflects an estimated Gross Profit Margin (calculated as of the date of the New OEM Agreement) derived from sales under the New OEM Agreement of not less than 15%, then Buyers shall pay to Sellers in each of the first four contract years of the New OEM Agreement, the following amount, as applicable, as additional consideration for the Company Interests (the amount payable by Buyers, the “ Deferred Consideration ”), at such times as provided in Section 3.6.3 :

(a)      if net sales under the New OEM Agreement are $50,000,000 for such contract year, an amount equal to $1,000,000 for such contract year;
(b)      if net sales under the New OEM Agreement are greater than $50,000,000 but less than $67,500,000 for such contract year, an amount equal to the sum of (i) $1,000,000, plus (ii) an additional $86,000 for each $1,000,000 of sales in excess of $50,000,000 for such contract year up to an aggregate of $1,500,000 (such that the maximum amount payable by Buyers under this paragraph (b) shall in no event exceed $2,500,000 per contract year in the aggregate); or
(c)      if net sales under the New OEM Agreement are equal to or greater than $67,500,000 for such contract year, $2,500,000 for such contract year.
3.6.2    The following procedures shall apply to the determination of the Deferred Consideration:

(i) Within 15 Business Days following the end of each of the first four contract years, Buyers shall cause to be prepared and delivered to Sellers a statement (the “ Deferred Consideration Statement ”) setting forth (x) the amount of sales under the New OEM Agreement, and (y) Buyers’ calculation of the Deferred Consideration for the relevant contract year (the “ Deferred Consideration Calculation ”).

(ii) Sellers shall have 15 Business Days after receipt by Sellers of the Deferred Consideration Statement to review such Deferred Consideration Statement (the “ Deferred Consideration Review Period ”). During the Deferred Consideration Review Period, Buyers shall make available to Sellers and their Representatives reasonable access during normal business hours to all relevant personnel, Representatives of Buyers, invoices, purchase orders and other items reasonably requested by Sellers solely for purposes reasonably related to the Deferred Consideration Calculation.


[NEWYORK 3251393_44]



(iii) If Sellers do not deliver to Buyers a written statement describing any objections Sellers may have to the Deferred Consideration Statement (a “ Deferred Consideration Notice of Disagreement ”) on or before the final day of the Deferred Consideration Review Period, then Sellers shall be deemed to have irrevocably accepted such Deferred Consideration Statement for purposes of the payment contemplated by Section 3.6.1 ; provided , that the only basis on which Sellers may dispute any matter in the Deferred Consideration Calculation pursuant to a Deferred Consideration Notice of Disagreement shall be a disagreement as to the amount of sales under the New OEM Agreement and/or an error in the calculation of the Deferred Consideration Calculation. Any Deferred Consideration Notice of Disagreement shall specify the items in the applicable Deferred Consideration Calculation disputed by Sellers and shall describe in reasonable detail the basis for such objection, as well as the amount in dispute.  If Sellers deliver to Buyers a Deferred Consideration Notice of Disagreement on or before the final day of the Deferred Consideration Review Period, then Buyers and Sellers shall attempt to resolve in good faith the matters contained in the Deferred Consideration Notice of Disagreement.


3.6.3    Any Deferred Consideration that Buyers are required to pay pursuant to Section 3.6.1 shall be paid in full no later than 30 Business Days following the end of the relevant contract years. Buyers or any Affiliate of Buyers shall pay to Sellers the applicable Deferred Consideration in cash by wire transfer of immediately available funds to bank accounts that have been designated in writing by Sellers at least three Business Days prior to such payment. Subject to the terms of this Agreement and the Transaction Documents, following the Closing, Buyers shall have sole discretion with regard to all matters relating to the operation of the Company and the Company Subsidiaries, provided , that Buyers shall not, directly or indirectly, and shall cause their Affiliates (including the Company and the Company Subsidiaries following the Closing) to not, directly or indirectly, take any action or fail to take any action, in any such case, with the purpose or intent, or that would reasonably be expected to have the effect, of avoiding or reducing any of the Deferred Consideration. Except as provided above, Buyers shall have no obligation to operate the Company or the Company Subsidiaries in order to achieve any Deferred Consideration or to maximize the amount of any Deferred Consideration.

3.6.4    Buyers shall have the right to withhold and set off against any amount otherwise due to be paid by Sellers pursuant to Section 3.6.1 the amount of any Losses to which any Buyer Indemnitee may be entitled under Sections 10.2 and 10.8.2 ; provided , that the validity and amount of any such Losses have been agreed to by Sellers, or are otherwise the subject of a final and non-appealable judgment.

3.7     Tax Withholding . Buyers will be entitled to deduct and withhold from the consideration payable to Sellers hereunder (including any Deferred Consideration) such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code or under any other Legal Requirement. Buyers will provide Sellers with written notice of such intended deduction or withholding within a commercially reasonable period of time before such deduction or withholding is required, and Sellers, to the extent practicable, shall



[NEWYORK 3251393_44]


have the opportunity to provide any certification or other information as required to mitigate such deduction or withholding. Buyers will promptly pay or cause to be paid any amounts withheld pursuant to this Section 3.7 for applicable Taxes to the appropriate Governmental Authority on behalf of Sellers. To the extent that such amounts are so withheld, such withheld amounts will be treated for all purposes of this Agreement as having been paid to Sellers.

4.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

Except as provided in the disclosure schedules delivered by the Company to Buyers in connection with the execution and delivery of this Agreement (the “ Company Schedules ”), the Company represents and warrants to Buyers that the statements contained in this Section 4 are true and correct as of the date of this Agreement and as of the Closing Date (except for representations and warranties that speak as of a specific date, in which case such representations and warranties are true and correct as of such date); provided , that no representation or warranty in this Section 4 shall be deemed to be an express or implied warranty of the Company pertaining to the business, assets, Liabilities, financial condition or results of operations of the Distributed ARG Business:
4.1     Corporate Matters.

4.1.1     Organization, Power, Standing and Authority of the Company . The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite limited liability company power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, to perform its obligations under such agreements and to consummate the Transactions (including all power and authority to sell, assign, transfer and convey the Company Interests as provided by this Agreement). The execution and delivery by the Company of this Agreement and the other Transaction Documents to which it is a party, the consummation of the Transactions and the performance by the Company of its obligations hereunder and thereunder, have been duly authorized by all necessary limited liability company action on the part of the Company, including all actions required to be taken by the Board of Managers and Sellers. This Agreement has been, and the other Transaction Documents to which the Company is a party, will be, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties thereto, each such agreement is, or will be, Enforceable against the Company in accordance with its terms. The Company has all requisite limited liability company power and authority necessary to own, lease and operate its properties and assets and to carry on the Business. The Company is duly qualified or licensed to do business as a foreign limited liability company, and is in good standing as such, in each jurisdiction where the character of the properties and assets owned or leased by it or nature of the Business makes such qualification, licensing or good standing necessary, except where the failure to be so qualified, licensed or in good standing has not had or would not reasonably be expected to have a Material Adverse Effect.

4.1.2    The Company has no Liabilities or assets other than the Equity Interests in PGW.


[NEWYORK 3251393_44]




4.1.3    The Company has heretofore made available to Buyers a true, complete and correct copy of its Organizational Documents.

4.1.4     Schedule 4.1.4 sets forth a correct and complete list of the officers, managers and directors of the Company.

4.2     Capitalization .

4.2.1    The issued and outstanding Equity Interests in the Company consist solely of the Company Interests held of record by Holdings. Except as set forth above, no Equity Interests in the Company are authorized, issued, reserved for issuance or outstanding. All outstanding Company Interests have been duly authorized and are validly issued, uncertificated, fully paid and non-assessable. None of the outstanding Company Interests are subject to or issued in violation of any option, right of first refusal, preemptive right or similar right under any provision of the DLLCA, the Company’s Organizational Documents, any Company Plan or any Contractual Obligation to which the Company is a party or otherwise bound.

4.2.2    Except as set forth on Schedule 4.2.2 , there is no Company Plan or Contractual Obligation which obligates the Company to issue, sell, transfer, purchase or redeem, or make any payment in respect of, any Equity Interests in the Company or any Company Subsidiary.

4.2.3     Schedule 4.2.3 sets forth a true, complete and correct list of the name and jurisdiction of organization of each Company Subsidiary. Each Company Subsidiary listed on Schedule 4.2.3 is duly formed and validly existing under the laws of its jurisdiction of organization and has all requisite corporate or limited liability company power and authority to own, lease and operate its property and assets and to carry on the Business. The Company has heretofore made available to Buyers a true, complete and correct copy of the Organizational Documents of each Company Subsidiary. Each Company Subsidiary is duly qualified or licensed to do business as a foreign entity, and is in good standing as such, in each jurisdiction where the character of the properties and assets owned or leased by it or nature of the Business makes such qualification, licensing or good standing necessary, except where the failure to be so qualified, licensed or in good standing has not had or would not reasonably be expected to have a Material Adverse Effect. Each Company Subsidiary listed on Schedule 4.2.3 is wholly owned, directly or indirectly, by the Company free and clear of all Liens (other than as set forth on Schedule 4.2.3 ).

4.2.4    The entire authorized capital stock (or, where applicable, other Equity Interests) of the Company Subsidiaries is as set forth on Schedule 4.2.4 , and has been duly authorized and is validly issued, uncertificated, fully paid and non-assessable. All of the outstanding Equity Interests of the Company Subsidiaries are held of record by the Persons in the respective amounts set forth on Schedule 4.2.4 , free and clear of all Liens. Except as set forth above, none of the Company Subsidiaries has any issued or outstanding Equity Interests. Except as set forth on Schedule 4.2.4 , neither the Company nor any other Company Subsidiary owns any Equity Interests in any Person other than the



[NEWYORK 3251393_44]


Company Subsidiaries. Except as set forth on Schedule 4.2.4 , there are no Equity Interests of any Company Subsidiary or any securities convertible into or exchangeable or exercisable for any such Equity Interests issued, reserved for issuance or outstanding.

4.2.5     Schedule 4.2.5 sets forth a correct and complete list of the officers, managers and directors of each Company Subsidiary and, to the extent appointed by the Company, each Company Joint Venture.

4.2.6     Schedule 4.2.6 sets forth a true, complete and correct list of the name and jurisdiction of organization of each Company Joint Venture. All of the outstanding Equity Interests of the Company Joint Ventures that are held of record by the Company or any Company Subsidiary are set forth on Schedule 4.2.6 , and are owned free and clear of all Liens (other than as set forth on Schedule 4.2.6 ). Sellers have heretofore made available to Buyers true, complete and correct copies of the Organizational Documents of each Company Joint Venture. Except as set forth on Schedule 4.2.6 , (i) none of the Company or any Company Subsidiary is obligated to contribute capital or otherwise lend money to any Company Joint Venture and (ii) to the Knowledge of the Company, there are no other Equity Interests of any Company Joint Venture that are outstanding or that have been authorized for issuance. Other than as specifically contemplated by the governing documents of the Company Joint Ventures, neither the Company nor any Company Subsidiary has provided any guarantees or other commitments of any kind to the Company Joint Ventures.

4.2.7    Except as set forth on Schedule 4.2.7 , the Company and the Company Subsidiaries have no Debt or other Guarantee of any obligation of a Person that is not a Company Subsidiary.


4.3     Non-Contravention, etc . The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, and the consummation by the Company of any of the Transactions, do not and will not constitute, result in or give rise to (with or without notice or lapse of time or both): (a) a breach or a violation of or a default under any provision of the Organizational Documents of the Company or any Company Subsidiary or (b) except as set forth on Schedule 4.3 , (i) a breach or violation of or default under any provision of any Material Contract or material Lease, (ii) the acceleration of the time for performance of any obligation under, or the right of any Party to accelerate, terminate, cancel or otherwise modify, any such Material Contract or material Lease, (iii) the imposition of any Lien upon or grant of any rights under any asset of the Company or any Company Subsidiary, (iv) a requirement that any consent under, or waiver of, any such Contractual Obligation or Organizational Document of the Company or any Company Subsidiary be obtained, or (v) except as would not reasonably be expected to have a Material Adverse Effect, a violation of, or the right of any Governmental Authority to challenge any of the Transactions under, any Legal Requirement applicable to the Company or any Company Subsidiary.

4.4     Licenses, Permits, Compliance with Laws, etc . Except as set forth on Schedule 4.4 , the Company and each of the Company Subsidiaries holds all material governmental licenses, permits, franchises and other governmental authorizations under any




[NEWYORK 3251393_44]


Legal Requirement necessary for the conduct of the Business or to own, lease and operate its assets and properties. All such material governmental licenses, permits, franchises and other governmental authorizations are valid and in full force and effect, and the Company and Company Subsidiaries are in material compliance with all such authorizations. No suspension or cancellation of any such material license, permit, franchise or other governmental authorization is pending or, to the Knowledge of the Company, threatened. Neither the Transactions nor, to the Knowledge of the Company, any other event that has occurred, with or without notice or lapse of time or both, would or would reasonably be expected to result in the revocation, suspension, lapse or limitation of any such material license, permit, franchise or other governmental authorization. Except as set forth on Schedule 4.4 , the Company and each Company Subsidiary is and, since January 1, 2013, has been, in compliance in all material respects with all Legal Requirements and their respective Organizational Documents. None of the Company or any Company Subsidiary has received since January 1, 2013, any oral or written notice from any Governmental Authority regarding any actual or alleged violation of, or failure to comply with, any Legal Requirement in any material respect. Neither the Company nor any Company Subsidiary, nor, to the Knowledge of the Company, any Representative of the Company or any Company Subsidiary, has violated the Foreign Corrupt Practices Act of 1977 or violated in any material respect any provision of any other applicable Anticorruption Laws. To the Knowledge of the Company, there is no investigation of, written allegation by, or request for information from the Company or any Company Subsidiary by any Governmental Authority regarding such Legal Requirements that would reasonably be expected to result in any material fine, penalty or enforcement action. To the Knowledge of the Company, none of the Company, any Company Subsidiary, or any current or former Representatives of the Company or any Company Subsidiary has violated in any material respect or operated in material noncompliance with any export restrictions, anti-boycott regulations, embargo regulations or other similar Legal Requirements.

4.5     Governmental Consents and Approvals .     No authorization, consent, permit, approval or other order of, declaration or notice to, or filing with, any Governmental Authority by or on behalf of the Company or any Company Subsidiary is required for or in connection with the execution and delivery of this Agreement and the other Transaction Documents or the consummation of the Transactions, except for (i) such filings as may be required under the HSR Act, and (ii) authorizations, consents, approvals, orders, declarations or filings, the failure to possess which, in the aggregate, would not have a Material Adverse Effect.
4.6    Financial Statements, etc.

4.6.1     Financial Information . True, complete and correct copies of the 2015 Unaudited Financial Statements and the September 2016 Unaudited Financial Statements are attached as Schedule 4.6.1 the (“ Financial Statements ”).

4.6.2     Character of Financial Information . The Financial Statements (including the notes thereto) (i) were prepared in accordance with GAAP consistently applied throughout the periods specified therein (except as may be indicated in the notes thereto), (ii) present fairly in all material respects in accordance with GAAP, the financial position, results of operations and cash flows of the Business on the dates and for the periods specified therein, subject, in the case of the September 2016 Unaudited Financial



[NEWYORK 3251393_44]


Statements, to absence of notes and normal year-end adjustments and reclassifications, and (iii) have been prepared from and in accordance with the books and records of the Company and the Company Subsidiaries. The books of account and other financial records of the Company and the Company Subsidiaries accurately and fairly reflect in all material respects in reasonable detail the transactions and the assets and Liabilities of the Company and the Company Subsidiaries.

4.6.3     2015 Audited Financial Statements . As of the Closing Date, the 2015 Audited Financial Statements (i) shall have been prepared in all material respects in accordance with GAAP (except as may be indicated in the notes thereto) consistently applied throughout the periods specified therein, (ii) shall present fairly in all material respects in accordance with GAAP, the financial position, results of operations and cash flows of the Business on the dates and for the periods specified therein, and (iii) shall have been prepared from and in accordance with the books and records of the Company and the Company Subsidiaries.

4.6.4     2016 and 2017 Financial Statements . As of the Closing Date and to the extent required to be provided to Buyers pursuant to Section 7.12.2 , (i) the 2016 Audited Financial Statements, the December 2016 Unaudited Financial Statements and each of the 2017 Unaudited Financial Statements, as applicable, shall have been prepared in all material respects in accordance with GAAP (except (x) with respect to the 2016 Audited Financial Statements, as described in the notes thereto, and (y) with respect to the December 2016 Unaudited Financial Statements and each of the 2017 Unaudited Financial Statements, for the absence of footnotes), consistently applied throughout the periods specified therein, (ii) shall present fairly in all material respects in accordance with GAAP, the financial position, results of operations and cash flows of the Business on the dates and for the periods specified therein and (iii) shall have been prepared from and in accordance with the books and records of the Company and the Company Subsidiaries.

4.6.5     Internal Controls . Except as set forth on Schedule 4.6.5 , since January 1, 2013, the Company’s auditor has not reported in writing to the Company any material weakness or significant deficiency in the design or operation of its internal controls over financial reporting, and to the Knowledge of the Company, there are no material weaknesses or significant deficiencies in the design or operation of the systems of internal control over financial reporting of the Company and the Company Subsidiaries. Since January 1, 2013, the Company and the Company Subsidiaries have not received any written complaint, allegation or claim alleging that the Company or any Company Subsidiary has engaged in any unlawful accounting or auditing practice.

4.6.6     Absence of Undisclosed Liabilities . The Company and the Company Subsidiaries do not have any Liabilities except for (i) Liabilities reflected or reserved against in the September 2016 Unaudited Financial Statements, (ii) Liabilities incurred in the ordinary course of business consistent with past practice since the September 2016 Unaudited Financial Statements, (iii) executory Contractual Obligations (and Liabilities thereunder) or (iv) other Liabilities that individually or in the aggregate have not had or would not reasonably be expected to have a Material Adverse Effect (none of which with



[NEWYORK 3251393_44]


respect to clause (ii) or (iii) above result from or arise out of any breach of contract, breach of warranty, tort, infringement or violation in any material respect of any Legal Requirement).

4.6.7     Accounts Receivable; Inventory . All accounts receivable reflected on the September 2016 Unaudited Financial Statements or included in the assets of the Company and the Company Subsidiaries in the calculation of the Working Capital Amount represent valid obligations arising from bona fide sales actually made or services actually performed in the ordinary course of business and are on account of goods or services actually rendered. All inventory of the Company and each Company Subsidiary is of a quality and quantity usable and saleable in the ordinary course of business, subject to reserves established in accordance with GAAP set forth on the September 2016 Unaudited Financial Statements for obsolete and slow moving items. The aggregate value of such inventory of the Company and the Company Subsidiaries as reflected in the September 2016 Unaudited Financial Statements has been recorded on the books and records of the Company and the Company Subsidiaries at the lesser of cost or realizable market value or adequate reserves have been provided in accordance with GAAP. The quantities of each item of such inventory are consistent with the levels of inventory maintained in the ordinary course of business. No such inventory is held on a consignment basis.

4.6.8     Off-balance Sheet Arrangements . Neither the Company nor any Company Subsidiary is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contractual Obligation (including any Contractual Obligation relating to any transaction or relationship between or among the Company and any Company Subsidiary, on the one hand, and any Company Joint Venture or other unconsolidated affiliate, including any structured finance, special purpose or limited purpose entity or person, on the other hand, or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K under the Securities Exchange Act of 1934)), where the result, purpose or intended effect of such arrangement is to avoid disclosure of any material transaction involving, or material Liabilities of, the Company or any Company Subsidiary in the Financial Statements.

4.6.9     CapEx Commitments . The Company and the Company Subsidiaries are not obligated by any contract, agreement or other legally binding commitment to make any capital expenditures materially in excess of those contemplated by the capital expenditure projections attached as Schedule 4.6.9 (the “ CapEx Budget ”).



4.7     Assets .


4.7.1     Title . The Company and the Company Subsidiaries have good title to or, in the case of property held or used under a lease and any other Contractual Obligation, an Enforceable right to use all of the properties and assets used in or necessary to the conduct of the Business (collectively, the “ Assets ”). The Assets that are owned by the Company or any Company Subsidiary are not subject to any Lien, other than Liens set forth on Schedule 4.7.1 .



[NEWYORK 3251393_44]



4.7.2     Condition and Sufficiency of Assets . The material furniture, machinery, equipment, vehicles and other items of tangible personal property of the Company and the Company Subsidiaries have been maintained in accordance with normal industry practice and are in standard operating condition and repair, ordinary wear and tear excepted, and are adequate for the uses to which they are being put. Except as set forth on Schedule 4.7.2 , the furniture, machinery, equipment, vehicles and other items of tangible personal property currently owned or leased by the Company and the Company Subsidiaries, together with all other personal properties and assets of the Company and the Company Subsidiaries, are sufficient for the continued conduct of the Business after the ARG Business Distribution and the Closing in substantially the same manner as conducted prior to the ARG Business Distribution and prior to the Closing and constitute all of the rights, property and assets necessary to conduct the Business.

4.7.3    This Section 4.7 does not relate to real property or interests in real property, such items being instead the subject of Section 4.8 , or to Intellectual Property or interests in Intellectual Property, such items being instead the subject of Section 4.9.1 .


4.8     Real Property .


4.8.1     Schedule 4.8.1 sets forth a list of the addresses of each location at which any furniture, fixtures, machinery, equipment or inventory owned or leased by the Company or a Company Subsidiary is located or at which the Company or a Company Subsidiary has an office or other place of business (“ Leased Real Property ”).

4.8.2     Schedule 4.8.2 sets forth a true, complete and correct list of all real property owned by the Company or any of the Company Subsidiaries (“ Owned Real Property ”), and sets forth for each such Owned Real Property the name of the owner of such property and the addresses thereof. Except as set forth on Schedule 4.8.2 , the Company or one or more of the Company Subsidiaries, as the case may be, has good fee simple title (or the equivalent concepts in a foreign jurisdiction) to the Owned Real Property, free and clear of all Liens.

4.8.3     Schedule 4.8.3 sets forth a true, complete and correct list of all leases or subleases of real property, currently in effect, under which the Company or any of the Company Subsidiaries leases or subleases as tenant or subtenant any real property (each, a “ Lease ,” and collectively, the “ Leases ”). The Company has made available to Buyers true, complete and correct copies of the Leases in all material respects, as amended to date, that are in its possession. With respect to each Lease:

4.8.3.1        such Lease is Enforceable by the Company or a Company Subsidiary in all material respects except for any Lease that has expired or terminated in accordance with its terms; and
    
4.8.3.2        except as set forth on Schedule 4.8.3.2 , (i) neither the Company nor any Company Subsidiary nor, to the Knowledge of the Company, any other party to any of the Leases, is in material breach or material violation of, or material default under such Lease, (ii) no event has occurred (including the failure


[NEWYORK 3251393_44]



to obtain any consent) which, with notice or lapse of time or both, would constitute a material breach or material violation of, or material default under, or permit termination, modification or acceleration thereunder or impair any right of the Company or a Company Subsidiary to exercise and obtain the benefit of any options contained in such Lease, and (iii) neither the Company nor any Company Subsidiary has received written notice of a breach of any material payment obligation or obligation to make material capital expenditures under such Lease; and


4.8.3.3        except as set forth on Schedule 4.8.3.3 , there are no rights of first refusal, rights of first offer or options to purchase in effect as to all or any portion of any Owned Real Property.

4.8.4    Except as set forth on Schedule 4.8.4 , neither the Company nor any Company Subsidiary is a party to any Lease that is accounted for by the Company as a capitalized lease under GAAP.

4.8.5    The Owned Real Property and the Leased Real Property (together, the “ Real Property ”) constitute all of the material real property that the Company and the Company Subsidiaries (or their Affiliates) own, lease, operate, or sublease in connection with the operation of the Business. The Real Property, together with all improvements thereon, and the use thereof by the Company and the Company Subsidiaries, are in material compliance with all applicable Legal Requirements, except as has not had and would not reasonably be expected to have a Material Adverse Effect. Utility services adequate for the operations of the Business as currently conducted are provided to the Real Property, and each parcel of the Real Property has sufficient access to and from publicly dedicated streets for the conduct of the Business, except, in any case, as has not had and would not reasonably be expected to have a Material Adverse Effect. True, complete and correct copies of title insurance policies, title commitments and surveys that are in the Company or the Company Subsidiaries’ possession which are related to the Owned Real Property have been made available to Buyers.

4.8.6    There is no pending or, to the Knowledge of the Company, threatened condemnation, expropriation or similar Action with respect to any material portion of the Owned Real Property that would materially impair the existing use of such Owned Real Property. Except as set forth in Section 4.8.2 , none of the Company or any of the Company Subsidiaries has assigned, transferred or pledged any interest in any of the Owned Real Property.


4.9     Intellectual Property Rights
.
4.9.1     Registered Intellectual Property . Schedule 4.9.1 lists all patents, patent applications, copyright registrations, copyright applications, registered domain names, registered Trademarks and applications for registered Trademarks, that are owned or purported to be owned by the Company or a Company Subsidiary (the “ Registered Intellectual Property ”), and, except as disclosed on Schedule 4.9.1 , the Company or a Company Subsidiary possesses all right, title and interest in and to the Registered



[NEWYORK 3251393_44]


Intellectual Property, free and clear of any Lien. Except as disclosed on Schedule 4.9.1 , (i) the Registered Intellectual Property is not subject to any outstanding Governmental Order that adversely affects the validity or enforceability of, or the use of or rights to any Registered Intellectual Property, and (ii) no Action is pending, threatened in writing or, to the Knowledge of the Company, orally threatened that challenges the validity, enforceability, use or ownership of any Registered Intellectual Property or any other Intellectual Property owned or purported to be owned by the Company or any Company Subsidiary (the “ Company Intellectual Property ”). The Company or a Company Subsidiary is the exclusive owner of all Registered Intellectual Property.

4.9.2     Right to Use Intellectual Property . The Company or a Company Subsidiary exclusively owns all right, title and interest in and to, or otherwise has sufficient rights to use all Intellectual Property and information technology assets used in or necessary for the Business as it is currently conducted and has been conducted, and all of those rights will survive the consummation of the Transactions unchanged; provided , however , that the foregoing shall not be interpreted as a representation regarding infringement or misappropriation of third party Intellectual Property, which is dealt with exclusively in Section 4.9.5 .

4.9.3     No Public Software . No Public Software (i) has been or is distributed in whole or in part in conjunction with any product or service provided or currently contemplated to be provided by the Company or any Company Subsidiary or (ii) has been or is made available (or is currently contemplated to be made available) to remote users as part of a service based on Public Software that under the relevant license would require that any source code be made available to the users.

4.9.4     No Defects . Proprietary Software owned by the Company or any Company Subsidiary does not contain (i) any clock, timer, counter, or other limiting or disabling code, design or routine or any viruses, Trojan horses, or other disabling or disruptive codes or commands that would cause the software to be erased, made inoperable or otherwise rendered incapable of performing in accordance with its performance specifications and descriptions or otherwise limit or restrict any person’s ability to use the software after a specific or random number of years or copies or (ii) any back doors or other undocumented access mechanism allowing unauthorized access to, and viewing, manipulation, modification or other changes to, the software.

4.9.5     No Infringement . Except as disclosed on Schedule 4.9.5 ,to the knowledge of the Company (i) neither the Company and the Company Subsidiaries, nor the conduct of the Business as currently conducted and has been conducted, nor the Company’s and Company Subsidiaries’ products, processes and services, infringe, misappropriate or otherwise violate or conflict with the Intellectual Property of any third party, nor have they done so, (ii) since September 30, 2008, neither the Company nor any Company Subsidiary has received any notice asserting or other assertion (A) alleging that the Company or a Company Subsidiary or the conduct of the Business infringes, misappropriates or otherwise violates (or that any of their respective products, processes or services infringe, misappropriate or otherwise violate) any Intellectual Property owned by a third party or (B) contesting the validity, enforceability or ownership of the



[NEWYORK 3251393_44]


Company Intellectual Property, nor in either case of (A) or (B) does the Company or any Company Subsidiary have reason to believe any such assertion or claim is likely and (iii) to the Knowledge of the Company, the Registered Intellectual Property and other Company Intellectual Property is not being infringed, misappropriated or otherwise violated by any third party in any material respect.

4.9.6     Trade Secrets . To the Knowledge of the Company, the Company and each Company Subsidiary have taken all commercially reasonable measures to maintain the confidentiality and value of the material confidential information necessary for the operation of the Business as currently conducted, including all of the Company’s and Company Subsidiaries’ Software. To the Knowledge of the Company, no such material confidential information has been disclosed by the Company to any person except pursuant to non-disclosure agreements that obligate that Person to maintain the confidentiality of such information.

4.9.7     Employee and Contractor Agreements . The Company and each Company Subsidiary have valid and enforceable written agreements with all employees that have conceived, developed, acquired or created any Intellectual Property that is material to the Business, pursuant to which agreements the entire and unencumbered right, title and interest in and to that Intellectual Property is assigned to the Company or a Company Subsidiary unless such Intellectual Property vests in the Company or a Company Subsidiary automatically by operation of law. The Company or a Company Subsidiary owns all Intellectual Property that has been developed for it by independent contractors or third parties and is material to the Business.



4.10     Material Contracts . Set forth on Schedule 4.10 is a true, complete and correct list of all of the following Contractual Obligations of the Company and the Company Subsidiaries as of the date hereof (each, a “ Material Contract ,” and collectively, the “ Material Contracts ”):


4.10.1    any Contractual Obligation for the purchase or sale of inventory, supplies, goods, products, equipment or other personal property, or for the furnishing or receipt of services (excluding Contractual Obligations between the Company or any Company Subsidiary and its own employees or individual consultants), in each case involving payments that would reasonably be expected to exceed $2,000,000 per annum or $5,000,000 during the stated term of the Contractual Obligation;

4.10.2    any agency, broker, dealer, distributor, manufacturer’s representative, sales representative, market research, marketing consulting, advertising, franchise or other similar Contractual Obligation, in each case involving payments that would reasonably be expected to exceed $500,000 per annum or $1,000,000 during the stated term of the Contractual Obligation;

4.10.3    all agreements that provide for the establishment or operation of any partnership, joint venture, joint development, strategic alliance or other similar arrangement, with respect to the Company Joint Ventures or to which the Company or any Company Subsidiary is a party;



[NEWYORK 3251393_44]



4.10.4    any Contractual Obligation under which the Company or any Company Subsidiary is prohibited or restricted from competing (i) in any business, (ii) in any geographic area, and/or (iii) for any current or potential customers anywhere in the world;

4.10.5    any Contractual Obligation involving employment or individual consulting arrangements of the Company with an employee or individual consultant providing for an annual base compensation in fiscal year 2016 in excess of $200,000;

4.10.6    all Collective Bargaining Agreements;

4.10.7    all continuing Contractual Obligations entered into in connection with any merger, consolidation or other business combination or any acquisition or disposition of an entity or line of business (including by sale of stock, sale of assets or otherwise) during the period beginning on July 3, 2008;

4.10.8    any Contractual Obligation relating to the creation, incurrence, assumption or guarantee of any Debt of the Company or any Company Subsidiary or Debt in excess of $1,000,000 owed to the Company or any Company Subsidiary;

4.10.9    any Contractual Obligation under which the Company or any Company Subsidiary grants a license or other rights (including by means of a covenant not to sue) with respect to any Intellectual Property (other than non-exclusive grants in customer contracts entered into in the ordinary course of business consistent with past practice);

4.10.10    any Contractual Obligation under which the Company or any Company Subsidiary receives any license (including by means of a covenant not to sue) with respect to Intellectual Property (other than licenses of Off-the-Shelf Software);

4.10.11        any Contractual Obligation containing “most favored nation” pricing or other preferential right to purchase or acquire any assets or property, “take or pay” provisions, ongoing fulfilment or funding commitments (as distinguished from an individual purchase or sale order, whether or not such purchase or sale order contemplates multiple deliveries or multiple payments), provisions granting covenants not to compete or exclusive rights, including with respect to the purchase, sale or distribution of inventory, raw materials, supplies or finished goods, and including any limitation on the Business to operate in any particular territory or with respect to any particular distribution or supply channel or segment, any rights of first refusal, rights of first offer, prospective or retroactive price adjustment provisions that automatically adjust the pricing of products and services in connection with price changes of natural gas or other commodities, or similar provisions other than any such Contractual Obligation that is terminable without penalty by the Company or any Company Subsidiary upon less than 90 days’ prior written notice or that involves payments of less than $2,000,000 per annum or $5,000,000 during the stated term of such Contractual Obligation;


4.10.12    any material Contractual Obligation with a Governmental Authority;


[NEWYORK 3251393_44]



4.10.13    any Contractual Obligation with respect to a Transaction Expense;

4.10.14    any Contractual Obligation requiring or otherwise relating to any future capital expenditures in excess of $750,000 by the Company;

4.10.15    any other Contractual Obligation involving payments that would reasonably be expected to exceed $2,000,000 per annum or $5,000,000 during the stated term of the Contractual Obligation and not otherwise set forth on Schedule 4.8.3 , Schedule 4.10 , Schedule 4.12 , Schedule 4.17 or Schedule 4.18 (excluding any intercompany obligations between or among the Company and the Company Subsidiaries);

4.10.16    any agreement involving the resolution or settlement of any actual or threatened Action with a value in excess of $1,000,000 or that provides for any material injunction or other material non-monetary relief, including any co-existence agreement; and

4.10.17    any agreement to enter into any of the foregoing.

The Company has made available to Buyers a true, complete and correct copy of each of the Material Contracts (including all modifications, amendments, supplements, annexes and schedules thereto and written waivers thereunder). Each Material Contract is Enforceable by the Company or the relevant Company Subsidiary in all material respects except for any Material Contract that has expired or terminated in accordance with its terms. Except as set forth on Schedule 4.10 , no material breach, material violation or material default by the Company nor, to the Knowledge of the Company, by any other Person, has occurred and is continuing under any Material Contract, and no event, condition or omission has occurred that, with notice or lapse of time or both, would constitute such a breach or violation of, or default.
4.11     Change in Condition . Since the September 2016 Unaudited Financial Statements, there has not been any change or effect that constitutes a Material Adverse Effect. Except as set forth on Schedule 4.11 , since the date of the September 2016 Unaudited Financial Statements, (i) the Business has been conducted in all material respects in the ordinary course of business consistent with past practice (except for actions taken in connection with the negotiation, execution or delivery of this Agreement and related due diligence, or as expressly required by this Agreement), and (ii) neither the Company nor any Company Subsidiary has taken any action that would have required the prior written consent of Buyers under Section 7.1 if such action had been taken after the date of this Agreement and prior to the Closing.

4.12     Insurance . Set forth on Schedule 4.12 is a true, complete and correct list of all fire liability, product liability, property, casualty, directors and officers, fiduciary liability, workers’ compensation, vehicular and other insurance policies by which the Company and the Company Subsidiaries are insured (collectively, the “ Insurance Policies ”), true, complete and correct copies of which have been made available to Buyers. Except as set forth on Schedule 4.12 , such Insurance Policies are in full force and effect and shall remain in full force and effect immediately following the consummation of the Transactions, other than as replaced by a substantially similar policy prior to Closing. Except as set forth on Schedule 4.12 , the



[NEWYORK 3251393_44]


Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company or any Company Subsidiary. To the Knowledge of the Company, all such Insurance Policies are valid and binding in accordance with their terms in all material respects. Except as set forth on Schedule 4.12 , since January 1, 2013, neither the Company nor any Company Subsidiary has received any written notice of cancellation of, material premium increase with respect to, or material alteration of coverage under, any of such Insurance Policies (other than with respect to changes in premium or coverage already reflected in the terms of such current Insurance Policies). All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. Except as set forth on Schedule 4.12 , there are no material claims related to the Business pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Neither the Company nor any Company Subsidiary is in material default under, or has otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are sufficient in all material respects for compliance with all Legal Requirements and Contractual Obligations to which the Company or any Company Subsidiary is a party or by which it is bound.

4.13     Tax Matters . Except as set forth on Schedule 4.13 :

4.13.1    all material Tax Returns that were required to be filed by or with respect to the Company, any Company Subsidiary or the Canadian Assets have been duly and timely filed (taking into account any extensions of time in which to file) with the appropriate Tax Authority, and each such Tax Return is true, complete and correct in all material respects;

4.13.2    all material Taxes owed (or required to be remitted) by the Company or any Company Subsidiary or with respect to the Canadian Assets (whether or not shown or required to be shown on any Tax Return) have been timely paid in full to the appropriate Tax Authority;

4.13.3    all material Taxes required to have been withheld and paid in connection with amounts paid by the Company or any Company Subsidiary to any employee, independent contractor, customer, equity holder or other third party have been withheld and timely paid to the appropriate Tax Authority, and each of the Company and each Company Subsidiary has complied, in all material respects, with all related informational reporting and back-up withholding requirements and has maintained, in all material respects, all required records with respect thereto;

4.13.4    no claim has ever been made by a Tax Authority in any jurisdiction where the Company, any Company Subsidiary or, with respect to the Canadian Assets, PGW Canada, does not file Tax Returns that the Company or any such Company Subsidiary or PGW Canada (as applicable) is required to file Tax Returns in such jurisdiction and none of the Company nor any Company Subsidiary or PGW Canada is aware of a significant risk in any such jurisdiction that the Company or any Company



[NEWYORK 3251393_44]


Subsidiary or, with respect to the Canadian Assets, PGW Canada could be required to file a Tax Return in such jurisdiction;

4.13.5    since January 1, 2013, no deficiencies have been asserted in writing or assessments made in writing as a result of any examinations of the Tax Returns referred to in Section 4.13.1 by the Internal Revenue Service (the “ IRS ”) or any state, local or foreign Tax Authority that have not been fully paid or resolved or adequately reserved for on the Financial Statements, and since April 21, 2016, none of the Company, any Company Subsidiary or PGW Canada is aware of any pending or potential assertion of deficiency or assessment;

4.13.6    since January 1, 2013, none of the Company, any Company Subsidiary or, with respect to the Canadian Assets, PGW Canada have received written notice of any dispute or claim pending with respect to Taxes of the Company, any Company Subsidiary or the Canadian Assets which has not been resolved, and there are no current Liens on any of the assets of the Company or any Company Subsidiary or on any of the Canadian Assets that arose in connection with any failure (or alleged failure) to pay any Tax other than (a) for current Taxes not yet due and payable or (b) that are being contested in good faith, in each case for which adequate reserves have been provided in accordance with GAAP;

4.13.7    since April 21, 2016, none of the Company, any Company Subsidiary or, with respect to the Canadian Assets, PGW Canada have (i) waived any statute of limitations (and no request for any such waiver or consent is pending) with respect to Taxes; (ii) agreed to any extension of the period for assessment or collection of any Taxes or deficiencies against the Company, any Company Subsidiary or the Canadian Assets; or (iii) executed or filed any power of attorney with respect to Taxes;

4.13.8    there are no written requests for rulings or determinations in respect of any Tax Matter pending between the Company, any Company Subsidiary or, with respect to the Canadian Assets, PGW Canada and any Tax Authority;

4.13.9    neither the Company nor any Company Subsidiary has participated in a “listed transaction” or “transaction of interest” as defined in Treasury Regulation Section 1.6011-4(b)(2) and Treasury Regulation Section 1.6011-4(b)(6), respectively;

4.13.10    neither the Company nor any Company Subsidiary is a party to any Tax allocation, sharing, reimbursement or similar agreement that is currently in effect, other than an agreement the primary purpose of which is not Taxes;

4.13.11        neither the Company nor any Company Subsidiary will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting initiated by the Company or a Company Subsidiary or a Tax Authority for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior



[NEWYORK 3251393_44]


to the Closing Date; (iii) election under Section 108(i) of the Code; (iv) any installment sale or open transaction disposition made on or prior to the Closing Date; or (v) any prepaid amount received on or prior to the Closing Date;

4.13.12    each of the Company, PGW, KPGW Canadian Holdco, LLC and European Holdco is, and since its date of formation has been, treated as a “disregarded entity” for U.S. federal and applicable state income Tax purposes, and each other Company Subsidiary is, and since its date of formation (or, in the case of PGW Technik GmbH, since February 8, 2012) has been, treated as a corporation under Subchapter C of the Code for U.S. federal and applicable state and relevant foreign income Tax purposes;

4.13.13    the unpaid Taxes of the Company and the Company Subsidiaries (i) did not, as of December 31, 2015, exceed the reserve for Liability for Taxes (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the 2015 Unaudited Financial Statements and (ii) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company and the Company Subsidiaries in filing their Tax Returns; and

4.13.14    except as has not had and would not reasonably be expected to have a Material Adverse Effect, (i) the Company and each Company Subsidiary has timely filed with the appropriate Governmental Authority all abandoned or unclaimed property reports required to be filed by or with respect to its assets and (ii) has properly paid over (or escheated) to such Governmental Authority all sums constituting abandoned property.

This Section 4.13 and Section 4.14 together contain the sole and exclusive representations and warranties of the Company and the Company Subsidiaries in this Agreement with respect to Taxes, and no other section of this Section 4 will be treated as containing any express or implied representations or warranties of the Company and the Company Subsidiaries relating to Tax matters.
4.14     Employee Benefit Plans .

4.14.1     Disclosure . Set forth on Schedule 4.14.1 is a list of all Company Plans. With respect to each Company Plan, the Company has made available to Buyers true, complete and correct copies of each of the following, as applicable: (i) the Company Plan document, together with all amendments thereto; (ii) any summary plan descriptions; (iii) employee handbooks; (iv) in the case of any Company Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination (or opinion) letter, if any, from the IRS; (v) non-discrimination testing results for the two most recent plan years; (vi) in the case of any Company Plan for which Forms 5500 are required to be filed, the three most recently filed Forms 5500, with schedules attached; (vii) the most recent actuarial valuations of any defined benefit pension plan set forth on Schedule 4.14.2 or other post-retirement benefit arrangement, such as those set forth on Schedule 4.14.2 ; and (viii) the most recent withdrawal liability estimate, if any, provided by any multiemployer plan set forth on Schedule 4.14.2 to the Company or any Company Subsidiary, as applicable.



[NEWYORK 3251393_44]



4.14.2     No Defined Benefit Pension Plans . Except as set forth on Schedule 4.14.2 , none of the Company nor any Company Subsidiary has ever maintained or been required to contribute to any Pension Plan subject to Title IV of ERISA, including any “multiemployer plan” as defined in Section 4001(a)(3) of ERISA. With respect to any plan set forth on Schedule 4.14.2 :

4.14.2.1    All PBGC-1s required to be filed by the Company have been timely filed;
4.14.2.2    All Company contributions (including all employer contributions) that are due have been paid and all contributions for any period ending on or before the Closing Date that are not yet due have been paid or accrued in accordance with applicable Legal Requirements and the past custom and practice of the applicable company;

4.14.2.3    No Action by the PBGC to terminate any single-employer defined benefit pension plan set forth on Schedule 4.14.2 has been commenced or, to the Knowledge of the Company, is threatened or anticipated and, to the Knowledge of the Company, no Action by the PBGC to terminate any multiemployer plan set forth on Schedule 4.14.2 has been commenced or is threatened or anticipated;

4.14.2.4    No corporation, trust, partnership or other entity that would be considered as a single employer with the Company or any Company Subsidiary under Section 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code (collectively, together with the Company and any Company Subsidiary, the “ Controlled Group Members ”) has incurred and no Controlled Group Member is reasonably expected to incur any liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal liability as defined in Section 4201 of ERISA) or under the Code with respect to any such plan that has not been satisfied in full, or that would reasonably be expected to result in any liability to any Buyer, the Company, any Company Subsidiary or any of their Affiliates with respect to any such plan; and

4.14.2.5    Except as set forth on Schedule 4.14.2.5 , neither the Company nor any Company Subsidiary has withdrawn at any time within the preceding six years from any such plan that is a multiemployer plan.

4.14.3     Company Plan Qualification; Company Plan Administration; Certain Taxes and Penalties . Except as set forth on Schedule 4.14.3 , each Company Plan has been administered in compliance in all material respects with its terms and applicable Legal Requirements. Each Company Plan, including any Company Plan that is a single-employer defined benefit plan set forth on Schedule 4.14.2 that is intended to be qualified under Section 401(a) of the Code or under any law or regulation of any foreign jurisdiction or Governmental Authority, and, to the Knowledge of the Company, any Company Plan that is a multiemployer plan set forth on Schedule 4.14.2 , has received a favorable determination letter (or is entitled to rely on a favorable opinion letter) from the



[NEWYORK 3251393_44]




IRS (or an appropriate foreign Governmental Authority) or has pending or has time remaining in which to file an application for such determination from the IRS (or an appropriate foreign Governmental Authority), and, to the Knowledge of the Company, no facts or circumstances exist that would adversely affect such qualified status. Neither the Company nor any Company Subsidiary has been subject, or is reasonably likely to become subject, to an employer shared responsibility payment under Section 4980H of the Code. There has been no non-exempt “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) with respect to a Company Plan that would reasonably be expected to result in material liability to the Company.

4.14.4     All Contributions and Claims and Premiums Paid . Except as set forth on Schedule 4.14.3 , (i) all contributions required to be made by the Company or the Company Subsidiaries on account of each Company Plan have been made or accrued on the Financial Statements, in either case, in all material respects, and (ii) there are no Actions relating to a Company Plan pending, threatened in writing or, to the Knowledge of the Company, anticipated other than routine claims for information or benefits in the normal course.

4.14.5     Retiree Benefits; Certain Welfare Plans . Other than as required under Section 601 et seq . of ERISA, Section 4980B of the Code or as set forth on Schedule 4.14.5 , no Company Plan that is a Welfare Plan provides benefits or coverage following retirement or other termination of employment. Each welfare benefit trust or fund that constitutes or is associated with a Company Plan and that is intended to be exempt from federal income tax under Section 501(c)(9) of the Code is so exempt. With respect to any retiree medical coverage set forth on Schedule 4.14.5 , as of the date hereof and to the actual Knowledge of the Company, there have been no catastrophic claims incurred under such coverage for which the Company could seek stop-loss coverage under its stop loss insurance policy.

4.14.6     Change of Control Payments . Except as set forth on Schedule 4.14.6 , the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the Transactions will not (alone or in combination with any other event) (i) entitle any current or former employee, consultant, officer, manager or director of the Company or any Company Subsidiary to severance pay or any other compensatory payment; (ii) result in any payment becoming due, accelerate the time of payment or vesting of benefits or increase the amount of compensation or benefits due to any current or former employee, consultant, officer or director or; (iii) result in any forgiveness of indebtedness, trigger any funding obligation under any Company Plan or impose any restrictions or limitations on the Company’s or any Company Subsidiary’s rights to administer, amend or terminate a Company Plan.

4.14.6     Section 280G . The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the Transactions will not (alone or in combination with any other event) result in any payment (whether in cash or property or the vesting of property) to any “disqualified individual” (as such term is defined in Treasury Regulation Section 1.280G-1) that could reasonably be construed, individually or in combination with any other such payment, to constitute an “excess


[NEWYORK 3251393_44]



parachute payment” (as defined in Section 280G(b)(1) of the Code). No person is entitled to receive any additional payment (including any tax gross-up or other payment) from the Company or any Company Subsidiary as a result of the imposition of the excise Taxes required by Section 4999 of the Code or any Taxes required by Section 409A.


4.15     Litigation . Except as set forth on Schedule 4.15 , (i) there is no material Action pending or, to the Knowledge of the Company, threatened against or by the Company or any Company Subsidiary or, to the Knowledge of the Company, any of their respective directors, officers or managers in their capacity as such, and (ii) neither the Company nor any Company Subsidiary is subject to any Governmental Order.

4.16     Environmental Matters .

4.16.1    Except as set forth on Schedule 4.16 , the operations of the Company and each Company Subsidiary are, and since January 1, 2013, have been in material compliance with applicable Environmental Law, which compliance includes the possession of and material compliance with all material governmental licenses, permits, franchises and other governmental authorizations required for those operations under applicable Environmental Law, and all such permits are in full force and effect.

4.16.2    Except as set forth on Schedule 4.16 , there is no Action or information request pending or, to the Knowledge of the Company, threatened in writing against the Company or any Company Subsidiary, and except for matters that have been resolved, neither the Company nor any Company Subsidiary has received written notice from any other Person, in respect of (i) material noncompliance with any Environmental Law; (ii) any Release or threatened Release of any Hazardous Substances on, at or from any property presently or formerly owned, occupied or operated by the Company or any Company Subsidiary; or (iii) material liability or potential liability of the Company or any Company Subsidiary under Environmental Law.

4.16.3    Except as set forth on Schedule 4.16 , no material capital expenditures are presently contemplated, proposed or required to be incurred by the Company or any Company Subsidiary for the purpose of complying with Environmental Law.

4.16.4    Except as set forth on Schedule 4.16 , neither the Company nor any Company Subsidiary has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled or exposed any Person to any Hazardous Substances in a manner that would reasonably be expected to give rise to any material liability pursuant to Environment Law. There has been no off-site disposal of Hazardous Substances that could give rise to liability on the part of the Company or any Company Subsidiary under Environmental Law except as would not reasonably be expected to have a Material Adverse Effect.

4.16.5    Except as set forth on Schedule 4.16 , there has been no Release or threatened Release of Hazardous Substances on, upon, into or from any site currently or, to the Knowledge of the Company, heretofore owned, leased, operated or otherwise used by the Company or any Company Subsidiary, other than such Releases or threatened


[NEWYORK 3251393_44]



Releases that have not resulted in and are not reasonably likely to result in material liability on the part of the Company or any Company Subsidiary under any Environmental Law.

4.16.6    Neither the Company nor any Company Subsidiary has assumed any material liability contractually of any other Person under Environmental Law.

4.16.7    The Company has made available to Buyers all material documents in the Company’s or any Company Subsidiary’s possession relating to the compliance of the Company and the Company Subsidiaries with, or to liability of the Company or any Company Subsidiary under, Environmental Law or to the environmental condition of the real property currently or formerly owned, occupied or operated by the Company and any Company Subsidiary.

4.16.8    NAICS (North American Industry Classification System) code 4231 is appropriate for each location owned or operated by the Company or any Company Subsidiary in the State of New Jersey; and no location owned or operated by the Company or any Company Subsidiary in the State of Connecticut generates more than 100 kilograms per month of hazardous waste.

4.17     Labor Relations .


4.17.1    Except as set forth on Schedule 4.17 , none of the Company or any Company Subsidiary is a party to, or bound by, any Collective Bargaining Agreement, nor is there, to the Knowledge of the Company, any duty on the part of the Company or any Company Subsidiary to bargain with any labor organization or representative and, to the Knowledge of the Company, there are no labor organizations representing, claiming to represent or seeking to represent any employees of the Company or any Company Subsidiary. The Company has provided to Buyers true, complete and correct copies of: (a) each Collective Bargaining Agreement currently in effect as of the date of this Agreement; (b) all documents, charges, complaints, notices or orders received by the Company, any Company Subsidiary, or any of their respective predecessors from the National Labor Relations Board or any state labor relations agency since January 1, 2013; and (c) any and all material arbitration opinions interpreting or enforcing any Collective Bargaining Agreement currently in effect as of the date of this Agreement, or with respect to employee discipline or discharge, issued since January 1, 2006. None of the Company or the Company Subsidiaries has had any strike, slow down, work stoppage, boycott, picketing, lockout, labor dispute or threat of any of these, or union organizing activity or questions concerning representation related to any of its employees since January 1, 2013.

4.17.2    With respect to the employees of the Company and the Company Subsidiaries, (i) there is no pending charge or complaint against Sellers, the Companies or the Company Subsidiaries by the National Labor Relations Board or any comparable U.S. or foreign Governmental Authority, and (ii) none of Sellers, the Company or the Company Subsidiaries are a party, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to such employees or employment practices. With respect to the employees of the Company and the Company Subsidiaries, the Company and the Company Subsidiaries are and since April 21, 2016, have been in compliance in all material respects with Legal Requirements regarding employment and employment


[NEWYORK 3251393_44]



practices and Legal Requirements in respect of any reduction in force (including notice, information and consultation requirements), except as would not be material to the Company and the Company Subsidiaries taken as a whole. Except as set forth on Schedule 4.17 , (x) no Actions relating to non-compliance with the foregoing have been brought since April 21, 2016, or are pending or, to the Knowledge of the Company, threatened, and (y) there have been no investigations by any Government Authority with respect to employment practices, nor any internal audits or assessments of employment practices since April 21, 2016. With respect to the employees of the Company and the Company Subsidiaries, there are no material outstanding assessments, penalties, fines, liens, charges, surcharges or other amounts due or owing by Sellers, the Company or the Company Subsidiaries pursuant to Legal Requirements regarding unemployment compensation benefits, social security or other benefits or obligations for employees, workplace safety or insurance/workers’ compensation. Schedule 4.17 sets forth a true and complete list of all material written notices or, to the Knowledge of the Company, other material communications received since April  21, 2016; by Sellers, the Company or the Company Subsidiaries from any Governmental Authority or other third-party regarding any actual or possible violation of the Occupational Safety and Health Act of 1970 and the rules promulgated thereunder or any other applicable Legal Requirement establishing standards of, or otherwise relating to, workplace safety.

4.18     Affiliate Transactions . Except as set forth on Schedule 4.18 , the Company and the Company Subsidiaries are not party to any Contractual Obligation with Sellers or any Affiliate of Sellers and none of the Company or any Company Subsidiaries has been party to any transaction involving Sellers, or any Affiliate of Sellers (other than the payment of salaries, benefits and other compensation in the ordinary course) since January 1, 2015. No LKQ Group Member owns or has rights to any Intellectual Property that relates to product technology or process used in the Business, nor will any such LKQ Group Member own or have rights to any such Intellectual Property after consummation of the Transactions other than pursuant to the Intellectual Property Agreement.

4.19     Customers and Suppliers .

4.19.1     Schedule 4.19.1 sets forth all OEM Customers to whom any of the Company or the Company Subsidiaries has sold goods or services for the fiscal year ended December 31, 2015. Since January 1, 2015, none of the Company or any Company Subsidiary has received any written notice that any such OEM customers has ceased, or intends to cease, to purchase goods or services from the Company or any Company Subsidiary or to otherwise terminate or materially reduce its relationship with the Company or any Company Subsidiary.

4.19.2     Schedule 4.19.2 sets forth the top 10 suppliers or vendors to whom any of the Company or the Company Subsidiaries has paid consideration for goods or services rendered for the fiscal year ended December 31, 2015. Since January 1, 2015, none of the Company or any Company Subsidiary has received any written notice that



[NEWYORK 3251393_44]


any such supplier or vendor has ceased, or intends to cease, to supply goods or services to the Company or any Company Subsidiary or to otherwise terminate or materially reduce its relationship with the Company or any Company Subsidiary.

4.20     Product Warranty; Liabilities . Since January 1, 2013, no warranties have been given by the Company or any Company Subsidiary other than in the ordinary course of business, and there have not been any material product recalls made by or directed to the Company or any Company Subsidiary. Neither the Company nor any Company Subsidiary has had any material Liability in respect of any product recalls made by or directed to the Company or any Company Subsidiary.

4.21     Financial Advisory, Finder’s or Broker’s Fees . No financial advisor, finder, agent or similar intermediary has acted on behalf of the Company or any Company Subsidiary in connection with this Agreement or the Transactions, and there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Company or any Company Subsidiary or on any action taken by the Company or any Company Subsidiary. There are no continuing Contractual Obligations of the Company or any Company Subsidiary to any financial advisor, finder agent or similar intermediary in connection with any other past, current or prospective transaction.

4.22     ARG Business Distribution . No representation or warranty is made with respect to, and no    representation or warranty in this Section 4 is or shall be deemed to be an express or implied warranty of the Company pertaining to, the business, assets, financial condition or results of operations of the Distributed ARG Business. As of the date of the ARG Business Distribution, the ARG Business Distribution will have (alone or in connection with any other transaction): (i) been carried out As Agreed; (ii) not resulted in the giving of any warranties or indemnification by any of the Company or the Company Subsidiaries; (iii) not violated any Legal Requirement (including as a result of not obtaining any required permit or authorization from any Governmental Authority) or required any governmental authorizations under any Legal Requirement that could not reasonably be expected to be received by the Closing or that would not reasonably be expected to have a Material Adverse Effect; (iv) not resulted in any employee of the Company or any Company Subsidiary becoming employed by an LKQ Group Member (other than the ARG Employees); (v) not violated any anti-assignment or change in control provision in any contract that would not reasonably be expected to have a material adverse effect on the Business; (vi) not result in any Person, other than Sellers, owning the capital stock of the Company or the Company Subsidiaries; (vii) not resulted in any Liability to the Company or the Company Subsidiaries that is not indemnifiable pursuant to Section 10.2.6 ; or (viii) not otherwise resulted in a material adverse effect on the Business. The ARG Business Distribution shall be duly authorized by all necessary corporate actions of the Company and the Company Subsidiaries.


5.    REPRESENTATIONS AND WARRANTIES OF SELLERS.

Sellers jointly and severally represent and warrant to Buyers that the statements contained in this Section 5 are true and correct as of the date of this Agreement and as of the Closing Date


[NEWYORK 3251393_44]



(except for representations and warranties that speak as of a specific date, in which case such representations and warranties are true and correct as of such date):
5.1     Organization, Power and Standing of Sellers . LKQ is duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Each of Holdings and PGW is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. PGW Canada is an unlimited liability corporation duly organized, validly existing and in good standing under the laws of Canada. Each Seller has all requisite limited or unlimited liability company or other appropriate power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, to perform its obligations under such agreements and to consummate the Transactions (including all power and authority to sell, assign, transfer and convey the Company Interests as provided by this Agreement).

5.2     Authorization and Enforceability . The execution and delivery by each Seller of this Agreement and the other Transaction Documents to which it is a party, the consummation of the Transactions and the performance by each Seller of its obligations hereunder and thereunder, have been duly authorized by all necessary limited or unlimited liability company or other appropriate action on the part of each Seller, including all actions required to be taken by the board of managers or similar governing body of Sellers. This Agreement has been, and the other Transaction Documents to which any Seller is a party, will be, duly and validly executed and delivered by the applicable Seller party thereto and each such agreement is, or will be, Enforceable against the applicable Seller party thereto in accordance with its terms.

5.3     Non-Contravention, etc . The execution, delivery and performance by each Seller of this Agreement and the other Transaction Documents to which it is a party, and the consummation by each Seller of the Transactions, do not and will not constitute, result in or give rise to (with or without notice or lapse of time or both): (i) a breach or a violation of or a default under any provision of the Organizational Documents of such Seller, (ii) a breach or violation of or default under any provision of any Contractual Obligation of such Seller, or (iii) a violation of, or the right of any Governmental Authority to challenge any of the Transactions under, any Legal Requirement applicable to Sellers.

5.4     Governmental Consents and Approvals . No authorization, consent, permit, approval or other order of, declaration or notice to, or filing with, any Governmental Authority by or on behalf of any Seller is required for or in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents or the consummation of the Transactions, except for (i) such filings as may be required under the HSR Act and (ii) such other authorizations, consents, approvals, orders, declarations or filings, which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the ability of any Seller to consummate the Transactions or to perform such Seller’s obligations under this Agreement and the other Transaction Documents to which it is a party.

5.5     Ownership Units . Holdings is the record and beneficial owner of, and has good, valid and marketable title to, the Company Interests, free and clear of any and all Liens, and is the sole member of the Company. Upon consummation of the Transactions, Buyers will own the Company Interests, free and clear of all Liens.


[NEWYORK 3251393_44]




5.6     Litigation . There is no Action pending or threatened in writing against any Seller (i) that has had or would have a material adverse effect on the ability of such Seller to perform its obligations under this Agreement and the other Transaction Documents to which it is a party, (ii) which seeks rescission of or seeks to enjoin the consummation of this Agreement, any Transaction Document to which it is a party or any of the Transactions, or (iii) relates to the Company or any Company Subsidiary.

5.7     Financial Advisory, Finder’s or Broker’s Fees . No financial advisor, finder, agent or similar intermediary has acted on behalf of Sellers or any of their Affiliates in connection with this Agreement or the Transactions, and there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with Sellers or any of their Affiliates or on any action taken by Sellers or any of their Affiliates. There are no continuing Contractual Obligations of Sellers or any of their Affiliates to any financial advisor, finder agent or similar intermediary in connection with any other past, current or prospective transaction relating to the Business.

5.8     Solvency . As of the Closing and immediately after giving effect to the Transactions, Sellers shall (i) be able to pay their debts as they become due, (ii) own property that has a fair saleable value greater than the amounts required to pay their debts (including a reasonable estimate of the amount of all of their contingent liabilities and obligations), and (iii) have adequate capital to carry on their businesses. Each Seller acknowledges that, in connection with the Transactions, no transfer of property is being made by Sellers and no obligation is being incurred by Sellers with the intent to hinder, delay or defraud either present or future creditors of Buyers, Sellers, the Company or any of the Company Subsidiaries.


6.    REPRESENTATIONS AND WARRANTIES OF BUYERS.

Buyers jointly and severally represent and warrant to Sellers that the statements contained in this Section 6 are true and correct as of the date of this Agreement and as of the Closing Date (except for representations and warranties that speak as of a specific date, in which case such representations and warranties are true and correct as of such date):
6.1     Corporate Matters .

6.1.1     Organization, Power and Standing of Buyers . Each of Vitro and Mexican Buyer is duly incorporated and validly existing under the laws of Mexico. US Buyer is duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Vitro Assets Corp. is duly incorporated, validly existing and in good standing under the laws of the State of Texas. Each Buyer has all requisite limited liability or other appropriate power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, to perform its obligations under such agreements and to consummate the Transactions (including all power and authority to purchase the Company Interests as provided by this Agreement).

6.1.2     Authorization and Enforceability . The execution and delivery by each Buyer of this Agreement and the other Transaction Documents to which it is a party, the consummation of the Transactions and the performance by each Buyer of its obligations


[NEWYORK 3251393_44]



hereunder and thereunder, have been duly authorized by all necessary corporate or other appropriate action on the part of each Buyer, including all actions required to be taken by the board of directors or similar governing body of Buyers. This Agreement has been, and the other Transaction Documents to which any Buyer is a party will be, duly and validly executed and delivered by the applicable Buyer party thereto and each such agreement is, or will be, Enforceable against the applicable Buyer party thereto in accordance with its terms.

6.1.3     Non-Contravention, etc . The execution, delivery and performance by each Buyer of this Agreement and the other Transaction Documents to which it is a party, and the consummation by each Buyer of the Transactions, do not and will not constitute, result in or give rise to (with or without notice or lapse of time or both): (i) a breach or a violation of or a default under any provision of the Organizational Documents of such Buyer, (ii) a breach or violation of or default under any provision of any Contractual Obligation of such Buyer, or (iii)  a violation of, or the right of any Governmental Authority to challenge any of the Transactions under, any Legal Requirement applicable to Buyers.

6.2     Governmental Consents and Approvals . No authorization, consent, permit, approval or other order of, declaration or notice to, or filing with, any Governmental Authority by or on behalf of any Buyer is required for or in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents or the consummation of the Transactions, except for (i) such filings as may be required under the HSR Act and (ii) such other authorizations, consents, approvals, orders, declarations or filings, which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the ability of any Buyer to consummate the Transactions or to perform such Buyer’s obligations under this Agreement and the other Transaction Documents to which it is a party.


6.3     Financing; Sufficiency of Funds; Solvency .

6.3.1    Buyers have delivered to Sellers true, correct and complete copies of (a) a fully executed commitment letter dated on or about the date of this Agreement (together with all exhibits, annexes, schedules and term sheets attached thereto and as amended, modified, supplemented, replaced or extended from time to time after the date of this Agreement in compliance with Section 7.18 , the “ Equity Funding Letter ”) from Vitro providing for an equity investment in either Buyer, subject to the terms and conditions therein, in the aggregate amount set forth therein (the “ Equity Financing ”) and (b) a fully executed credit agreement (dated on or about the date of this Agreement with the Financing Sources identified therein (together with all exhibits, annexes, schedules and term sheets attached thereto and as amended, modified, supplemented, replaced or extended from time to time after the date of this Agreement in compliance with Section 7.18 , collectively, the “ Debt Documents ” and, together with the Equity Funding Letter, the “ Financing Documents ”), providing, subject to the terms and conditions therein, for debt financing in the amounts set forth therein (being collectively referred to as the “ Debt Financing ” and, together with the Equity Financing, collectively referred to as the “ Financing ”). As of the date of this Agreement, (i) none of the Financing Documents has been amended or modified, and, to the Knowledge of Buyers, no such



[NEWYORK 3251393_44]



amendment or modification is contemplated and (ii) none of the respective obligations and commitments contained in such letters and documents have been withdrawn, terminated or rescinded in any respect and, to the Knowledge of Buyers, no such withdrawal, termination or rescission is contemplated. Buyers have fully paid (or caused to be paid) any and all commitment fees or other fees in connection with the Financing Documents that are payable on or prior to the date of this Agreement. Assuming the Financing is funded in accordance with the Financing Documents, the net proceeds contemplated by the Financing Documents (after netting out applicable fees, expenses, original issue discount and similar premiums and charges and after giving effect to the maximum amount of flex (including original issue discount flex), if any, provided under the Debt Documents) will be sufficient in the aggregate to make all payments required by Section 3.1 and otherwise consummate the Transactions and pay all related fees and expenses (such amount, the “ Required Amount ”). The Financing Documents are (x) Enforceable in accordance with their respective terms against Buyers and, to the Knowledge of Buyers, each of the other parties thereto and (y) in full force and effect. As of the date of this Agreement, no event has occurred which, with or without notice, lapse of time or both, would reasonably be expected to constitute a default or breach on the part of any Buyer or, to the Knowledge of Buyers, any other parties thereto under the Equity Funding Letter or the Debt Documents. As of the date of this Agreement, assuming satisfaction or waiver of the conditions to Buyers’ obligations to consummate the Transactions, Buyers do not have any reason to believe that the conditions precedent set forth in the Financing Documents will not be satisfied, that the Required Amount will not be available on the Closing Date, or that Buyers or any other party to the Equity Funding Letter or Debt Documents will be unable to satisfy on a timely basis any term or condition of closing to be satisfied by it contained therein. The only conditions precedent (including the market “flex” provisions, if any) related to the obligations of Vitro to fund the full amount of the Equity Financing and the lenders to fund the full amount of the Debt Financing are those expressly set forth in the Equity Funding Letter and the Debt Documents, respectively. As of the date of this Agreement, there are no side letters or other Contractual Obligations or arrangements to which any Buyer or any of its Affiliates is a party related to the Financing other than as expressly contained in the Financing Documents delivered to Sellers prior to the date of this Agreement that would (A) impair the enforceability of any of the Financing Documents, (B) reduce the aggregate amount of any portion of the Financing (including by increasing the amount of fees to be paid or original issue discount as compared to the fees and original issue discount contemplated by the Financing Documents on the date of this Agreement) such that the aggregate amount of the Financing would be below the amount required to pay the Required Amount, (C) impose new or additional material conditions precedent to the receipt of the Financing, (D) otherwise adversely modify any of the conditions precedent to the Financing in a material way or (E) reasonably be expected to prevent, materially impair or materially delay the consummation of the Financing.


6.3.2    There are no circumstances or conditions that would reasonably be expected to delay or prevent the availability of the Required Amount at the Closing, other than as expressly set forth in the Financing Documents. Each Buyer understands and acknowledges that the obligations of Buyers to consummate the Transactions are not in any way contingent upon or otherwise subject to any Buyer’s consummation of any


[NEWYORK 3251393_44]



financing arrangement or obtaining of any financing, or the availability, grant, provision or extension of any financing to Buyers. Assuming (i) the accuracy of those representations and warranties of the Company and Sellers set forth in Section 4 and Section 5 , the accuracy of which is an express condition to Closing, and (ii) satisfaction or waiver of the conditions to Buyers’ obligations to consummate the Transactions, Buyers will have the Required Amount on the Closing Date.

6.3.3    As of the Closing and immediately after giving effect to the Transactions, Buyers shall (i) be able to pay their debts as they become due, (ii) own property that has a fair saleable value greater than the amounts required to pay their debts (including a reasonable estimate of the amount of all of their contingent liabilities and obligations), and (iii) have adequate capital to carry on their businesses. Each Buyer acknowledges that, in connection with the Transactions, no transfer of property is being made by Buyers and no obligation is being incurred by Buyers with the intent to hinder, delay or defraud either present or future creditors of Buyers, Sellers, the Company or any of the Company Subsidiaries.

6.4     Litigation . There is no Action pending or threatened in writing against any Buyer (i) that has had or would have a material adverse effect on the ability of any Buyer to perform its obligations under this Agreement and the other Transaction Documents to which it is a party or (ii) that seeks rescission of or seeks to enjoin the consummation of this Agreement, any Transaction Document or any of the Transactions.

6.5     Financial Advisory, Finder’s or Broker’s Fees . No financial advisor, finder, agent or similar intermediary has acted on behalf of Buyers or any of their Affiliates in connection with this Agreement or the Transactions, and there are no brokerage commissions, finder’s fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with Buyers or any of their Affiliates or on any action taken by Buyers or any of their Affiliates.

6.6     No Adverse Impact . To the Knowledge of Buyers, there are no material events, facts or circumstances arising since January 1, 2011, relating to the relationship between Buyers and their Affiliates, on the one hand, and any of the Persons set forth on Schedule 8.6 or any of their respective Affiliates on the other hand, that would reasonably be expected to adversely impact the Company’s ability to obtain the applicable consents required pursuant to Section 8.6 .


7.    CERTAIN AGREEMENTS OF THE PARTIES.

7.1     Conduct of Business . Except (i) as otherwise set forth on Schedule 7.1 or as otherwise contemplated by the ARG Business Distribution or this Agreement, or (ii) for the operation or conduct of the Distributed ARG Business by the Company or any of the Company Subsidiaries in a manner that would not affect the Business or continue to affect the Company or any Company Subsidiary after the consummation of the ARG Business Distribution, from the date of this Agreement through the earlier of the Closing or the termination of this Agreement in accordance with its terms, unless each Buyer provides its prior written consent (which will not be unreasonably withheld, conditioned or delayed), the Company and each Company Subsidiary will (A) conduct the business of the Company and each Company Subsidiary in the ordinary


[NEWYORK 3251393_44]



course of business consistent with past practice in all material respects and (B) use commercially reasonable efforts, consistent with past practice, to (X) maintain and preserve the value of the Business as a going concern, (Y) keep available the services of the current officers, key employees of, and consultants to, the Company or any of the Company Subsidiaries providing services to the Business (subject to termination in the ordinary course of business or as permitted by this Section 7.1 ), and (Z) keep the Business and operations relating to the Business intact and preserve the Business, its material rights, franchises, goodwill and relations with its clients, customers, lessors, suppliers and others with whom it does business relating to the Business so that they will be preserved after the Closing. Without limiting the generality of the foregoing sentence, except (i) as otherwise set forth on Schedule 7.1 or as otherwise contemplated by the ARG Business Distribution or this Agreement or (ii) for the operation or conduct of the Distributed ARG Business by the Company or any of the Company Subsidiaries in a manner that would not affect the Business or continue to affect the Company or any Company Subsidiary after the consummation of the ARG Business Distribution, from the date of this Agreement through the earlier of the Closing or the termination of this Agreement in accordance with its terms, the Company will not, and will not cause or permit any Company Subsidiary to, without the prior written consent of each Buyer, which will not be unreasonably withheld, conditioned or delayed:
7.1.1    amend the Organizational Documents of the Company or any Company Subsidiary or vote in favor of or otherwise consent to any amendment to the Organizational Documents of any Company Joint Venture;

7.1.2    transfer, issue, grant, sell, pledge or otherwise dispose of or grant or suffer to exist any Lien with respect to any Equity Interests of the Company or any Company Subsidiary or any Equity Interests in any Company Joint Venture or any options, warrants, convertible securities or other rights of any kind to acquire any such Equity Interests, or repurchase, redeem or otherwise acquire any Equity Interests of the Company or any Company Subsidiary (other than repurchases made in connection with the termination of employment of employees of the Company or any Company Subsidiary);

7.1.3    make any Distributions or transfers of assets to Sellers (other than compensation paid to any manager, director, officer, employee or individual consultant to, or agent of, the Company in the ordinary course of business or cash dividends and distributions made to holders of Equity Interests in the Company or any Company Subsidiary in accordance with the applicable Organizational Documents);

7.1.4    sell, lease, transfer, license or otherwise dispose of or grant or suffer to exist any Lien with respect to any material Intellectual Property or other material assets except for (i) sales or other dispositions of inventory or equipment in the ordinary course of business consistent with past practice, (ii) pursuant to existing Contractual Obligations, or (iii) non-exclusive license agreements entered into with customers, distributors or original equipment manufacturers in the ordinary course of business consistent with past practice;



[NEWYORK 3251393_44]




7.1.5    enter into, amend, grant a waiver under or otherwise modify in any material respect, or accelerate, terminate or cancel any, Material Contract or any Contractual Obligation that, if entered into as of or prior to the date hereof, would constitute a Material Contract or material Lease, in either case, except in the ordinary course of business if such Material Contract or material Lease would not materially impact the operation of the Business or as required by applicable Legal Requirements, or enter into any Contractual Obligation for the purchase of real property;

7.1.6    other than in the ordinary course of business (i) cancel or compromise any Debt or claim, (ii) waive or release any right of material value, or (iii) commence, institute, settle or agree to settle any Action, in the case of each of the foregoing clauses (i), (ii) and (iii), involving any amount greater than $500,000;

7.1.7    acquire or invest in the Equity Interests of, or lend or contribute capital to, any Person that is not a Company Subsidiary or such Person’s business (whether by merger, sale of stock, sale of assets or otherwise) except as contemplated by Section 7.23 ;

7.1.8    create any direct or indirect Subsidiary of the Company;

7.1.9    (i) enter into or modify any employment contract or increase, amend, fund in a rabbi trust or similar arrangement or otherwise accelerate the vesting or payment of (A) the base salary, (B) the bonus opportunity, (C) severance, (D) the employee benefits, or (E) any other compensation or benefits of any manager, director, officer, employee, independent contractor or consultant to, or agent of, the Company or any Company Subsidiary other than a Potential ARG Employee, or (ii) pay or award, or commit to pay or award, any bonuses or incentive compensation, except, in the case of each of the foregoing clauses (i) and (ii), as required by a Material Contract or Company Plan pursuant to terms and conditions in effect as of the date hereof or as required by applicable Legal Requirements;

7.1.10    incur any Debt except (i) any capital lease listed on Schedule  4.2.7 or a capital lease that has a value of less than $500,000 in the aggregate, provided that (A) such capital lease shall have been provided for in the CapEx Budget and (B) any capital leases incurred pursuant to this Section 7.1.10 shall not exceed $1,500,000 in the aggregate, and (ii) bank Debt incurred under the Credit Agreement in the ordinary course of business consistent with past practice;

7.1.11    assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the Debt or other Liabilities, or incur or provide any other Guarantee, of any Person that is not a Company Subsidiary or the Company, except in the ordinary course of business consistent with past practice;

7.1.12    incur Liens, except for Liens securing Debt not prohibited by Section 7.1.10 ;

7.1.13    enter into any transaction (other than on an arm’s-length basis) with any Affiliate, any Seller or any Affiliate thereof, other than ordinary course transactions



[NEWYORK 3251393_44]


with employees consisting of the payment of benefits or compensation or reimbursement of expenses;

7.1.14    settle or compromise any claim or Liability with respect to a material amount of Tax, change (or make a request to any Tax Authority to change) any material Tax election or other aspect of its method of accounting for Tax purposes, enter into any closing agreement relating to Taxes, file any material amended Tax Return, surrender any material right or claim to a refund of Taxes or consent to any extension or waiver of the limitation period applicable to any material Tax claim or assessment or any Tax Return; provided , that Sellers shall be authorized to file any extension of time to file a Tax Return pursuant to the ordinary course of filing of Tax Returns by Sellers;

7.1.15    adopt a plan of complete or partial liquidation, dissolution, restructuring or recapitalization or file a petition in bankruptcy under any provisions of federal or state bankruptcy law or consent to the filing of any bankruptcy petition against the Company, any Company Subsidiary or any Company Joint Venture under any similar Legal Requirements;

7.1.16    change its auditor or change its methods of accounting or accounting practices (including with respect to reserves) in effect as of the date of this Agreement except as required by changes in GAAP;

7.1.17    change in any material respect the policies or practices regarding accounts receivable or accounts payable or fail to manage working capital in accordance with past practices, if in each case such change or failure would result in an adjustment as of the date of such charge of 4% or more to the Working Capital Amount;

7.1.18    make any material capital expenditures other than as accounted for in the CapEx Budget;

7.1.19    establish, adopt, enter into or terminate any Company Plan or any plan, program, policy, agreement or arrangement that would be a Company Plan if in effect as of the date hereof, or modify the terms of any employee benefit under a Company Plan, in each case, other than as expressly required under this Agreement or by applicable Legal Requirements;

7.1.20    pay any severance or termination pay other than in the ordinary course of business consistent with past practice and consistent with the applicable Company severance plans listed on Schedule 4.14.1 or as required by any Material Contract set forth on Schedule 4.10 or a Company Plan on terms and conditions existing as of the date of this Agreement;

7.1.21    (i) hire, terminate (except for cause as determined by the Company in good faith and consistent with past practice) or promote any (A) (x) officer, vice president or similar employee with senior management responsibilities or any plant manager, or (y) individual who has target annual compensation greater than $75,000, or (B) other than in the ordinary course of business consistent with past practice, hire or engage the services of any independent contractor or employee not described in



[NEWYORK 3251393_44]



clause (A) above, or (ii) transfer the employment of any employee of the Company or the Company Subsidiaries (other than any ARG Employee) to any entity other than such employee’s employer as of the date of this Agreement;

7.1.22    during the 90 days prior to Closing, or in whole or in part as a result of the transactions contemplated by this Agreement, effect or permit a “mass layoff,” “plant closing” or similar mass employment separation as those terms are defined under the federal Worker Adjustment and Retraining Notification Act or any other federal, state or local Legal Requirement related to mass employment separations (collectively, the “ WARN Act ”), or engage in any action or conduct that triggers application of the WARN Act, whether occurring prior to, as of the Closing Date or following the Closing;

7.1.23    except as required by any final certification order of the National Labor Relations Board or any similar order from any comparable U.S. or foreign Governmental Authority (in which case reasonable advance notice will be provided to Buyer), recognize any labor union or any other association as the bargaining representative of any employees;

7.1.24    except as required by any Legal Requirement (in which case reasonable advance notice will be provided to Buyer), enter into, modify, change or terminate any Collective Bargaining Agreement, or negotiations for a collective bargaining agreement, with any labor union or other association with respect to any employees;

7.1.25    enter into any agreement or arrangement that limits or otherwise expressly restricts the Company or any of the Company Subsidiaries or any of their present or future Affiliates or any successor thereto from engaging or competing in any line of business and/or in any location;

7.1.26    enter into any written contract with any stockholder, director or officer (other than employment-related contracts with directors or officers to the extent permitted under Sections 7.1.19 , 7.1.20 and 7.1.21 ) of the Company or any Company Subsidiary that will survive the Closing;

7.1.27    abandon, cancel, invalidate, voluntarily permit to lapse, fail to renew, continue to prosecute, protect, defend or otherwise dispose of any Company Intellectual Property;

7.1.28    allow any policies or binders of insurance coverage in effect as of the date hereof to lapse or otherwise become ineffective, other than those that are replaced by a substantially similar policy;

7.1.29    enter into a new line of business or abandon or discontinue any existing line of business; or

7.1.30    enter into any Contractual Obligation to do any of the actions referred to in Section 7.1.1 through Section 7.1.30 .



[NEWYORK 3251393_44]




Other than the right to consent or withhold consent with respect to the foregoing matters (which consent will not be unreasonably withheld, delayed or conditioned), nothing contained in this Agreement will give to Buyers, directly or indirectly, any right to control or direct the operations of the Company or any Company Subsidiary prior to the Closing. Prior to the Closing, Sellers, the Company and the Company Subsidiaries shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over the business and operations of the Company and the Company Subsidiaries. Notwithstanding anything to the contrary contained herein, nothing shall prohibit Sellers from time to time from (i) sweeping cash from the accounts of the Company or a Company Subsidiary, including making any distributions or dividends in furtherance thereof, and retaining such cash for their own account or the account of any of their Affiliates or (ii) paying, pre-paying, reducing or otherwise discharging any Debt of the Company or a Company Subsidiary up until the completion of the Closing.
7.2     Preparation for Closing . Buyers, on the one hand, and Sellers, on the other hand, shall use their respective reasonable best efforts to take or cause to be taken all actions necessary or desirable to bring about the fulfillment of each of the conditions precedent to the obligations of the other set forth in this Agreement, including making all necessary registrations and filings (including filings under the HSR Act and any other applicable Legal Requirements) with any Governmental Authority, and obtaining all necessary waivers, consents and approvals from, and taking all steps to avoid any action or Action by, any Governmental Authority, subject to the following:

7.2.1    Regulatory Compliance.

7.2.1.1    Buyers and the Company will use their reasonable best efforts to prepare, and as promptly as practicable, but no later than 15 Business Days following the date hereof, make all necessary registrations and filings with the appropriate Governmental Authorities, including a notification with respect to the Transactions pursuant to the HSR Act (indicating with each such notification and filing a request for early termination or acceleration of any applicable waiting period, where permitted), supply all information requested by Governmental Authorities in connection with all such filings and any applicable Antitrust Laws, and consider in good faith the views of the other Party in responding to any such request. Buyers will be solely responsible for all filing fees required to be paid in connection therewith. The Parties will use their respective reasonable best efforts and will cooperate fully with one another to comply as promptly as practicable with all governmental requirements applicable to the Transactions and to obtain promptly all approvals, orders, permits or other consents of any applicable Governmental Authorities necessary for the consummation of the Transactions. Each of the Parties will furnish to the other Parties and, upon request, to any Governmental Authorities, such information and assistance as may be reasonably requested in connection with the foregoing, including by responding promptly to and complying fully with any request for additional information or documents under the HSR Act or any other applicable Antitrust Laws. The Parties will use their respective reasonable best efforts to resolve favorably any review or consideration of the antitrust aspects of the Transactions by any Governmental




[NEWYORK 3251393_44]




Authority with jurisdiction over the enforcement of any applicable Antitrust Laws.


7.2.1.2    Each Party will use its reasonable best efforts to (i) avoid the entry of, or have vacated or terminated, any Governmental Order that would restrain, prevent or delay the consummation of the Transactions, including by defending through litigation on the merits any claim asserted in any court, agency or other Action by any Person, including a Governmental Authority, and (ii) avoid or eliminate any impediment under any applicable Antitrust Law that may be asserted by any Governmental Authority with respect to the Transactions so as to enable their consummation as soon as reasonably possible; provided that notwithstanding anything in this Agreement to the contrary, no Party shall be required to (and Sellers shall not and shall cause the Company not to, without the prior written consent of Buyers, which consent may be withheld for any reason) proffer or agree to license, sell or lease or otherwise dispose of or hold separate, pending such disposition, any of its or its Affiliates’ assets, rights, product lines, businesses or other operations or assets.


7.2.1.3    The Company and Buyers will promptly notify the other Party of any substantive communication it or its Affiliates receive from any Governmental Authority relating to the matters that are the subject of this Agreement and permit the other Parties to review in advance any proposed communication by it to any Governmental Authority. Neither the Company nor any Buyer will agree to participate in any meeting with any Governmental Authority in respect of any filings, investigation or other inquiry with respect to this Agreement or the Transactions unless it consults with the other Parties in advance and, to the extent permitted by such Governmental Authority, gives the other Parties the opportunity to attend and participate at such meeting.

7.2.2     China State Administration of Taxation . Sellers shall (x) comply as promptly as practicable with the notice and reporting provisions available under the China State Administration of Taxation’s Bulletin on Several Issues of Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-resident Enterprises (SAT Bulletin 2015 No. 7), dated February 3, 2015, that may be applicable to the Transactions and are invoked by any Party and (y) furnish to Buyers and, upon request, to the China State Administration of Taxation, such information and assistance as may be reasonably requested in connection with the foregoing. The costs of filing of any such notice and reporting shall be borne 50% by Buyers and 50% by Sellers, provided that the aggregate amount to be paid by Buyers pursuant to this Section 7.2.2 shall not exceed $10,000.


7.2.3     Consents. Prior to the Closing Date, upon Buyers’ written request and at Buyers’ expense, the Company shall use commercially reasonable efforts (but the Company, Sellers and their respective Affiliates shall have no obligation to pay any fees or incur any expenses or other Liabilities) to secure such written consents or waivers or provide notice under or with respect to the Contractual Obligations described on Schedule 7.2.3 ); provided , that, except as otherwise provided in Section 8.6 , (i) Buyers



[NEWYORK 3251393_44]


 
shall be primarily responsible for drafting all proposed consent, waiver or notice documentation (subject to the Company’s review and reasonable comment) and (ii) the obtaining of any such consents or waivers or the provision of such notices shall not be deemed to be conditions to the obligations of the Parties to consummate the Transactions, and the failure to obtain any such consents or waivers shall not be deemed a breach of this Agreement by Sellers or the Company.

7.3     Employees .

7.3.1    For the one-year period following the Closing (or such shorter period as the applicable Company Employees continue to be employed by Buyers, the Company or any Company Subsidiary after the Closing), Buyers shall cause the Company, and, if applicable, the Company Subsidiaries, to provide to their respective employees that continue to be employed by Buyers, the Company or the Company Subsidiaries after both the ARG Business Distribution and the Closing (such employees together with the Canadian Transferred Employees, the “ Company Employees ”), benefit plans, programs and arrangements with compensation and benefits (other than equity-based compensation and retention and change in control benefits (it being understood and agreed that the exclusion of such benefits does not relieve Buyers, the Company or the Company Subsidiaries from any legal obligation such Party has under any existing Company Plan or Contractual Obligation)) that are substantially similar in the aggregate to those provided (i) to such employees as of immediately prior to the Closing or (ii) to similarly situated employees of Buyers and their Subsidiaries as determined by Buyers in their sole discretion. A Buyer or an Affiliate of a Buyer shall make offers of employment to the PGW Canada employees listed on Schedule 7.3.1 (the “ Potential Canadian OEM Employees ”) effective on the Closing Date, on terms and conditions of employment that are substantially similar in all respects to (i) such terms and conditions of employment applicable to similarly situated employees of Buyers and their Subsidiaries or (ii) those terms and conditions under which such Potential Canadian OEM Employees were employed by PGW Canada immediately prior to the Closing Date, as determined by Buyers in their sole discretion.  Employees who are offered and accept employment with a Buyer or an Affiliate of a Buyer shall be referred to herein as the “ Canadian Transferred Employees .”  Buyers or their Affiliates shall bear all of the Liabilities, obligations and costs relating to any claims made by any Potential Canadian OEM Employee for any statutory, common law or contractual severance benefits payable to such Potential Canadian OEM Employee arising out of Buyers’ or their Affiliates’ failure to make an offer of employment to such Potential Canadian OEM Employee in accordance with the terms of this Agreement. Sellers shall bear all of the Liabilities, obligations and costs relating to any statutory, common law or contractual severance benefits payable to a Potential Canadian OEM Employee to the extent Buyers or their Affiliates make an offer of employment to such Potential Canadian OEM Employee in accordance with the terms of this Agreement; provided that, for the avoidance of doubt, Sellers shall not be responsible for any such amounts or benefits payable by Buyers or their Affiliates as a result of the termination of employment of any Canadian Transferred Employee with Buyers or their Affiliates following the Closing. Nothing set forth in this Section 7.3.1 will create a contract of employment with or for the benefit of any employee, or change such employee’s status as an employee at-will. For the 31-day period immediately



[NEWYORK 3251393_44]




following the Closing Date, neither Buyers nor the Company or any of the Company Subsidiaries (including any person or committee thereof) shall be permitted to modify, amend, terminate or discontinue, in whole or in part, any or all of the provisions of the Severance Plan A, dated March 15, 2009, (and further amended) of Pittsburgh Glass Works, LLC (the “ Severance Plan ”) as in effect immediately prior to the Closing Date, provided that nothing herein shall prohibit Buyers, the Company or the Company Subsidiaries from amending or modifying the Severance Plan to the extent the applicable Company Employee consents to such amendment or modification. For the avoidance of doubt, any amendment, modification, termination or discontinuance of the Severance Plan on or after 31 days following the Closing Date shall not affect a participant’s right to benefits under the Severance Plan to which the participant became entitled prior to such amendment, modification, termination or discontinuance without such participant’s consent. Notwithstanding the foregoing, Buyers shall honor the terms of any existing Collective Bargaining Agreement covering Company Employees, but nothing in this Section 7.3.1 or otherwise in this Agreement shall prevent Buyers from changing any employment term for employees represented by a labor organization following collective bargaining with the labor organization representing such employees, or consistent with any right or obligation arising under a Collective Bargaining Agreement.

7.3.2    With respect to any employee benefit plan, program or policy that is made available by Buyers, the Company or any Company Subsidiary after the Closing Date to any Company Employee: (i) all periods of service with the Company or any Company Subsidiary or, with respect to the Canadian Transferred Employees only, PGW Canada, as applicable, or any predecessor entity thereto (to the extent recognized by the Company, such Company Subsidiary or PGW Canada prior to the Closing in respect of a comparable Employee Plan), by any such employee prior to the Closing Date, will be credited for eligibility, participation and vesting purposes (but not benefit accrual purposes) under such plan, program or policy and for purposes of calculating level of benefits under any severance, sick leave or vacation plans, except (A) with respect to any plan that provides retiree welfare benefits, (B) for purposes of participation eligibility under any defined benefit pension plan or plan providing post-retirement pension plan benefits (other than a Company Plan), or (C) for purposes of any plan, program or arrangement (1) under which similarly situated employees of Buyers and their Subsidiaries do not receive credit for prior service or (2) that is grandfathered or frozen, either with respect to level of benefits or participation, and (ii) with respect to any Welfare Plans for which such employee may become eligible after the start of the plan year in which the Closing Date occurs, Buyers shall or shall make commercially reasonable efforts to cause such plans to provide credit for the year in which the Closing occurs for any co-payments or deductibles and maximum out-of-pocket payments by such employees and to waive all pre-existing condition exclusions and waiting periods, other than (x) to the extent permitted by applicable Legal Requirements, limitations or waiting periods that had not been satisfied under the corresponding Company Plan and (y) in the case of sub-clauses (i) and (ii), to the extent that such credit would result in a duplication of benefits with respect to the same period of service, under corresponding Company Plans prior to the Closing Date. Buyers will or will cause the Company and, if applicable, the Company Subsidiaries, to recognize vacation days previously accrued and reserved by the Company, any Company Subsidiary or, with respect to the Canadian



[NEWYORK 3251393_44]




Transferred Employees only, PGW Canada immediately prior to the Closing Date to the extent reflected on Schedule 7.3.2 , which will be provided by Sellers to Buyers no later than three Business Days prior to Closing.

7.3.3    Following the Closing Date, Sellers and their Affiliates shall retain (or assume, as applicable) and fulfill all Liabilities arising out of the employment (or termination thereof) of or compensation or benefits due to any Potential ARG Employee, ARG Employee, Former ARG Employee, or current or former employee of Sellers or their Affiliates (other than the Company and the Company Subsidiaries), including any such Liabilities related to such individuals’ participation in or eligibility for any Company Plan. If an LKQ Group Member made any payment to any Company Employee set forth on Schedule 7.3.3 pursuant to a Seller Plan that has the actual effect of reducing any severance obligation to such Company Employee as a result of the termination of employment of such Company Employee by Buyers or their Subsidiaries after the Closing, then Buyers shall reimburse such LKQ Group Member promptly following the termination of such Company Employee in an amount equal to the amount by which the severance obligation to such Company Employee is reduced.


7.3.4    The Parties acknowledge and agree that all provisions contained in this Section 7.3 are included for the sole benefit of the respective Parties and shall not create any right, including any third-party beneficiary right, (i) of any current or former employee, independent contractor or other service provider or any participant or any beneficiary thereof in any Company Plan or any Employee Plan of Buyers, the Company or any Company Subsidiary, or (ii) to employment or continued employment or any term or condition of employment with Buyers, the Company or any Company Subsidiary or any Affiliate thereof. Nothing in this Agreement, express or implied, shall (x) be construed as an amendment to or adoption of any collective bargaining agreement, Company Plan or any other employee benefit or compensation plan, program or arrangement of Buyers, the Company, any Company Subsidiary or any Affiliate thereof, or (y) interfere with or limit Buyers’, the Company’s or any Company Subsidiaries’ or any of their Affiliate’s ability to, following the Closing Date, amend, modify or terminate any collective bargaining agreement, Company Plan or any other benefit or compensation plan, program, agreement, policy, contract or arrangement or to terminate the employment of any Company Employee for any reason following the Closing Date, in each case in accordance with its terms.

7.3.5    The Parties will reasonably cooperate in good faith with respect to any communications to employees of the Company and the Company Subsidiaries (other than the communication with the Potential ARG Employees, which, except as provided in Section 7.14.8.4 , shall be handled in Sellers’ sole discretion) regarding the Transactions. Sellers will provide Buyers with a reasonable opportunity to review and comment on any communications intended for such employees that it desires or has to send to such employees prior to the Closing Date.

7.3.6    Prior to the Closing, Sellers shall, or shall cause the Company and the Company Subsidiaries to: (x) satisfy all requirements to inform, consult with or provide notice of any of the Transactions (including the implementation of the ARG Business



[NEWYORK 3251393_44]



Distribution) to any labor union, works council or other employee representative bodies representing all or any category of Company Employees; and (y) upon timely request by any labor organization representing any Company Employee, bargain in good faith with respect to the Transactions and the effects of this Agreement on such employees, provided that none of the Company, the Company Subsidiaries nor Seller shall modify or amend any Collective Bargaining Agreement applicable to the Business in connection with such effects bargaining in a manner that increases the employer’s obligations thereunder without the consent of Buyer (not to be unreasonably withheld, conditioned or delayed).

7.3.7    Subject to Section 7.3.1 , Buyers shall be responsible for determining and paying to eligible Company Employees the annual bonus awards in respect of the calendar year in which the Closing occurs (“ Closing Year Bonuses ”); provided , however , that Sellers shall reimburse Buyers for their portion of the Closing Year Bonuses for Closing Year Bonuses awarded under a Company Plan substantially similar to the Company Plan in effect immediately prior to the Closing in an aggregate amount equal to the product obtained by multiplying (A) the aggregate amount of the Closing Year Bonuses by (B) the quotient obtained by dividing (i) the number of days from and including January 1 of the year in which Closing occurs, through and including the date on which the Closing Date occurs by 366 days, such reimbursement to be made in cash within ten calendar days following receipt by Sellers of written confirmation from Buyers of the payment of the Closing Year Bonuses. Sellers shall cause the Company to pay any outstanding annual bonus awards for 2016 (the “ 2016 Bonuses ” and together with the “ Closing Year Bonuses, ” the “ Bonuses ”) in the ordinary course of business and consistent with past practice (including timing of payment) and to the extent all or a portion of the 2016 Bonuses are not paid prior to the Closing, Sellers shall reimburse the Company for the portion of any 2016 Bonuses that are earned in accordance with the terms and conditions of the applicable Company Plan as determined in the reasonable discretion of Sellers but not paid prior to the Closing within 10 calendar days following receipt by Sellers of written confirmation from Buyers of the payment of the 2016 Bonuses.


7.4     Access Prior to Closing .

7.4.1    Sellers shall, and shall cause the Company and each Company Subsidiary to, permit Buyers and their Representatives to have reasonable access, from the date of this Agreement through the earlier of the Closing or the termination of this Agreement in accordance with its terms, to (a) all employees, offices, properties, facilities, agreements, assets, permits, records, books, affairs and any other information of the Company and the Company Subsidiaries, as Buyers may from time to time reasonably request; and (b) furnish to Buyers and their Representatives such additional monthly financial, technical and operating data and other information produced in the ordinary course of business as Buyers may from time to time reasonably request, in the case of each of (a) and (b) for purposes of (x) consummating the Transactions and preparing to operate the Business following the Closing, and (y) in order for any Party to comply with the notice and reporting provisions available under the China State Administration of Taxation’s Bulletin on Several Issues of Enterprise Income Tax on



[NEWYORK 3251393_44]



Income Arising from Indirect Transfers of Property by Non-resident Enterprises (SAT Bulletin 2015 No. 7), dated February 3, 2015.


7.4.2    All access pursuant to Section 7.4.1 shall be conducted (i) during normal working hours, (ii) under the reasonable supervision of the personnel of the Company, the Company Subsidiaries or the Company Joint Ventures, (iii) at Buyers’ expense, and (iv) upon reasonable notice, to the extent that Buyers and their Representatives do not unreasonably disrupt the personnel and operations of the Company or the Company Subsidiaries. Notwithstanding anything to the contrary set forth in this Agreement, (x) no such Person will have access (1) to personnel records of the Company or any Company Subsidiary relating to individual performance or evaluation records, medical histories or other information which in the Company’s good faith opinion is sensitive or the disclosure of which could subject the Company or any Company Subsidiary to risk of liability, (2) for purposes of conducting any environmental sampling or testing, except with Sellers’ prior written consent or (3) to documentation or other information primarily relating to the Distributed ARG Business, and (y) neither the Company nor any Company Subsidiary will be required to disclose any information if doing so (1) could violate any Contractual Obligation or Legal Requirement to which the Company or any Company Subsidiary is a party or is subject or (2) Sellers believe in good faith could result in a loss of the ability to successfully assert a claim of privilege (including the attorney-client and work product privileges).

7.4.3    All information provided pursuant to Section 7.4.1 will be subject to the confidentiality agreement dated May 30, 2016, between LKQ and Vitro (the “ Confidentiality Agreement ”) and Section 7.10.4 .


7.5     Access After Closing .


7.5.1    Subject to the next sentence, for a period of five years after the Closing Date, Buyers will, and agree to cause the Company and each Company Subsidiary to, preserve and keep, and Sellers and their Representatives will have reasonable access to, the books and records of the Company and the Company Subsidiaries to the extent that such access may reasonably be required by such Persons in connection with matters relating to or affected by the ownership of the Company or any Company Subsidiary prior to the Closing. If the Company or any Company Subsidiary desires to dispose of any such books and records prior to the expiration of such five-year period, the Company will, prior to such disposition, notify Sellers and give Sellers and their Representatives a reasonable opportunity, at such parties’ expense, to segregate and remove such books and records as such Persons may select.

7.5.2    All access pursuant to Section 7.5.1 shall be conducted (i) during normal working hours, (ii) under the reasonable supervision of the personnel of the Company or the Company Subsidiaries, (iii) at Sellers’ expense, and (iv) upon reasonable notice, to the extent that Sellers and their Representatives do not unreasonably disrupt the personnel and operations of the Company or the Company Subsidiaries. Notwithstanding anything to the contrary set forth in this Agreement, (x) no such Person will have access to personnel records of the Company or any Company Subsidiary relating to individual


[NEWYORK 3251393_44]



performance or evaluation records, medical histories or other information which in the Company’s good faith opinion is sensitive or the disclosure of which could subject the Company or the Company Subsidiaries to risk of liability, and (y) neither the Company nor any Company Subsidiary will be required to disclose any information if doing so (1) could violate any Contractual Obligation or Legal Requirement to which the Company or any Company Subsidiary is a party or is subject or (2) it believes in good faith could result in a loss of the ability to successfully assert a claim of privilege (including the attorney-client and work product privileges).

7.5.3    All information provided pursuant to Section 7.5.1 will be subject to Section 7.10.1 .


7.6     Indemnification of Managers, Directors, Officers and Employees .


7.6.1    From and after Closing, each Buyer shall, or shall cause the Company and each of the Company Subsidiaries to, exculpate, indemnify and hold harmless all individuals who at any time prior to or at the Closing were, are or will be managers, directors, officers, employees and agents of the Company and the Company Subsidiaries (collectively, “ D&O Indemnified Persons ”) to the fullest extent currently provided under the Organizational Documents of the Company and the Company Subsidiaries and permitted by Legal Requirements from and against all Losses arising out of acts or omissions by any D&O Indemnified Persons at or prior to the Closing. Without limiting the foregoing, from and after Closing, the exculpation, indemnification and advancement provisions in the Organizational Documents of the Company and the Company Subsidiaries, in each case as of the date of this Agreement, will not be repealed, terminated, limited, amended or in any other way changed, in any way adverse to the D&O Indemnified Persons, for at least six years after the Closing Date unless, and only to the extent, required by applicable Legal Requirements. With respect to any right to indemnification or advancement of D&O Indemnified Persons with respect to actions taken or omissions to act occurring at or prior to the Closing Date, the Company and each Company Subsidiary, as applicable, shall be the indemnitor of first resort, responsible for all such indemnification or advancement that any D&O Indemnified Persons may have from any direct or indirect equity holder of the Company (or any Affiliate thereof) and without right to seek subrogation, indemnity or contribution.

7.6.2    If the Company or any Company Subsidiary (or, in each case, any of its successors or assigns) transfers all or substantially all of its properties and assets to any Person (whether by merger, sale of equity, sale of assets, recapitalization or any other transaction or series of transactions), then, and in each such case, proper provision will be made so that the successors and assigns of the Company or any Company Subsidiary, as applicable, fully assume the obligations set forth in this Section 7.6 . This Section 7.6 will be for the benefit of, and will be enforceable by, the D&O Indemnified Persons and their respective heirs, executors, administrators and estates, and such Persons will be intended third-party beneficiaries of this Agreement for such purposes.

7.6.3    Sellers shall cause the Company to maintain, through the Closing Date, the Company’s and the Company Subsidiaries’ existing directors’ and officers’


[NEWYORK 3251393_44]



insurance, fiduciary liability insurance, professional liability insurance and employment practices liability insurance in full force and effect without reduction of coverage.

7.6.4    The rights of each D&O Indemnified Person under this Section 7.6 will be in addition to any rights each such Person may have under the Organizational Documents of the Company and the Company Subsidiaries, or under any Legal Requirement. These rights will survive consummation of the Transactions and may not be eliminated or limited in any way whatsoever except as set forth herein. These rights are intended to benefit, and will be enforceable by, each D&O Indemnified Person, and their respective heirs, executors, administrators and estates, and each such Person will be an intended third-party beneficiary of this Agreement for such purposes.


7.7     Exclusivity .

7.7.1    During the period from the date of this Agreement through the earlier of the Closing or the termination of this Agreement in accordance with its terms, Sellers will not, nor will they permit any of their Affiliates (including the Company and the Company Subsidiaries), officers, managers, directors, employees, representatives, consultants, financial advisors, attorneys, accountants or other agents to (i) take any action to solicit, encourage, initiate, induce, engage in or otherwise facilitate discussions or negotiations with, (ii) provide any information to, or (iii) enter into any agreement with, any Person (other than Buyers and their Affiliates) concerning any purchase of any of the Company’s or any of the Company Subsidiary’s Equity Interests, any of the Company’s direct or indirect Equity Interests in the Company Joint Ventures or any merger or sale of substantial assets or similar transaction involving the Company, any Company Subsidiary or any Company Joint Venture (an “ Alternative Transaction ”), except, in each case, (A) assets sold in the ordinary course of business or (B) assets or Equity Interests of Company Subsidiaries distributed or transferred pursuant to the ARG Business Distribution.

7.7.2    In addition to Sellers’ obligations pursuant to Section 7.7.1 , Sellers shall promptly (and in any event within two Business Days after receipt thereof by Sellers or any of their Affiliates) advise Buyers in writing of the receipt by Sellers or any of their Affiliates of any request for information with respect to any Alternative Transaction or any inquiry with respect to or which would reasonably be expected to lead to an Alternative Transaction, including, as applicable, the material terms and conditions of, and the identity of the Person making, such request or inquiry.

7.8     Waiver of Conflicts; Privilege . Each Buyer, on behalf of itself and each of its Affiliates (including the Company and each Company Subsidiary following the Closing Date) (collectively, the “ Buyer Related Parties ”) hereby waives any claim that K&L Gates LLP or any other legal counsel representing the Company or any of the Company Subsidiaries prior to the Closing (each a “ Prior Company Counsel ”) in connection with this Agreement, the negotiation thereof or the Transactions (each a “ Pre-Closing Representation ”) has or will have a conflict of interest or is or will be otherwise prohibited from representing any Seller or any officer, director, member, manager or Affiliate of any Seller (collectively, the “ Seller Related Parties ,” which for the avoidance of doubt will not include the Company or any Company Subsidiary following the



[NEWYORK 3251393_44]



Closing) in any dispute with any of the Buyer Related Parties or any other matter relating to this Agreement, the negotiation thereof or the Transactions, in each case, after the Closing, even though the interests of one or more of the Seller Related Parties in such dispute or other matter may be directly adverse to the interests of one or more of the Buyer Related Parties and even though Prior Company Counsel may have represented the Company or one or more of the Company Subsidiaries in a matter substantially related to such dispute or other matter and may be handling ongoing matters for one or more of the Buyer Related Parties. Buyers, on behalf of all of the Buyer Related Parties, hereby covenant and agree that, as to all communications between any Prior Company Counsel, on the one hand, and any Seller Related Parties or the Company or one or more of the Company Subsidiaries (with respect to the Company or one or more of the Company Subsidiaries, solely prior to the Closing), on the other hand, that relate in any way to the Pre-Closing Representation (the “ Seller Parties’ Pre-Closing Confidential Communications ”), the attorney-client privilege and the expectation of client confidence belong to and shall be controlled by Sellers (on behalf of the Seller Related Parties) and shall not pass to or be claimed by any Buyer Related Parties following the Closing. All books, records and other materials of the Company and the Company Subsidiaries in any medium containing or reflecting any of the Seller Parties’ Pre-Closing Confidential Communications or the work product of legal counsel with respect thereto, are hereby assigned and transferred to Sellers. Without limitation of the foregoing, no Buyer Related Parties may use or rely on any communications described in the immediately preceding sentence in any Action against or involving any of the Seller Related Parties. Notwithstanding the foregoing, if after the Closing a dispute arises between any Buyer, the Company or one or more of Company Subsidiaries, on the one hand, and a third party other than (and unaffiliated with) any Seller or one or more of its Affiliates, on the other hand, then Buyers, the Company or such Company Subsidiary (to the extent applicable) may assert the attorney-client privilege to prevent disclosure to such third party of confidential communications by Prior Company Counsel; provided , that none of Buyers, the Company or any of the Company Subsidiaries may waive such privilege without the prior written consent of Sellers. This Section 7.8 is for the benefit of the Seller Related Parties and each Prior Company Counsel, and the Seller Related Parties and each Prior Company Counsel are intended third party beneficiaries of this Section 7.8 . This Section 7.8 shall survive the Closing indefinitely, shall be irrevocable and no term of this Section 7.8 may be amended, waived or modified without the prior written consent of Sellers and the Prior Company Counsel affected thereby. Buyer acknowledges that it has had adequate opportunity to consult with counsel of its choosing and has consulted with such counsel in connection with its decision to agree to the terms of this Section 7.8 .

7.9     Confidentiality . Each Party will treat, and will cause its respective Affiliates, counsel, accountants and other advisors and representatives to treat, all nonpublic information obtained in connection with this Agreement and the Transactions as confidential in accordance with the terms of the Confidentiality Agreement. The terms of the Confidentiality Agreement are hereby incorporated by reference and will continue in full force and effect until the Closing, at which time such Confidentiality Agreement will terminate. If this Agreement is for any reason terminated prior to the Closing, the Confidentiality Agreement will continue in full force and effect as provided in Section 12.2 in accordance with its terms.

7.10     Restrictive Covenants .




[NEWYORK 3251393_44]



7.10.1     Seller Nondisclosure . Each Seller covenants and agrees that for a period of two years following the Closing Date, such Seller shall not, except in connection with the Permitted ARG Business, disclose or use, directly or indirectly, any Business Confidential Information except in connection with such Seller’s continuing commercial relationship with the Company or any Company Subsidiary, including pursuant to the Supply Agreement, or except as otherwise provided below. If the disclosure of Business Confidential Information is required by any Legal Requirement, each Seller agrees to use commercially reasonable efforts to provide Buyers an opportunity to object, at their sole expense, to the disclosure and shall give Buyers as much prior written notice as is commercially reasonable under the circumstances. Nothing in this Section 7.10.1 shall limit the disclosure of any Business Confidential Information (i) to the extent required by applicable Legal Requirements ( provided , that, unless legally prohibited, Sellers shall give Buyers prior notice of such legally compelled disclosure as promptly as reasonably practicable), (ii) in connection with the defense or prosecution of any Action or claim (including any Action arising from or relating to this Agreement or the Transactions or other documents and agreements entered into in connection with this Agreement (whether or not any Buyer is a party)), (iii) as necessary in connection with the preparation, filing and delivery of Tax Returns, insurance claims and/or financial reports, or (iv) to Representatives of Sellers and their Affiliates who have a need to know in connection with any of the foregoing. For purposes of this Section 7.10.1 , “ Business Confidential Information ” means all confidential or proprietary information of the Company or any Company Subsidiary or any Seller exclusively relating to the Business or the property and assets of the Company and the Company Subsidiaries exclusively used in the Business; provided , that “Business Confidential Information” shall not include information which (i) has been, is or becomes generally available to the public other than as a result of a disclosure in violation of Sellers’ obligations under this Section 7.10.1 , (ii) information that was or is independently developed by any Seller or any of Sellers’ Affiliates or Representatives without the use of or reference to the Business Confidential Information, or (iii) information which becomes known to any Seller or any of Sellers’ Affiliates or Representatives after the date hereof other than as a result of a disclosure in violation of any Seller’s obligations under this Agreement; “Business Confidential Information” specifically includes information relating to the products, services, strategies, pricing, customers, representatives, suppliers, distributors, technology, finances, employee compensation, computer software and hardware, inventions, developments and trade secrets of the Company or any Company Subsidiary that exclusively relate to the Business.


7.10.2     Seller Non-Solicitation . Each Seller covenants and agrees that for a period of 30 months following the Closing Date, such Seller shall not, and shall cause its Affiliates not to, without the prior written consent of Buyers, either directly or indirectly, solicit or induce, or attempt to solicit or induce, whether or not for consideration, any Company Employee set forth on Schedule 7.10.2 to terminate or abandon his or her employment with the Company or any Company Subsidiary; provided , however , that the foregoing restrictions shall not restrict any right of Sellers or their Affiliates to (i) solicit any Company Employee whose employment is terminated by Buyers, the Company or any Company Subsidiary or who has not been employed by the Company for the nine-month period prior to the date of such solicitation or hiring, (ii) hire any Company                



[NEWYORK 3251393_44]




Employee not solicited in violation of this Section 7.10.2 , (iii) conduct general solicitations for employees or public advertisements of employment opportunities (including general solicitations in any local, regional or national newspapers or other publications or circulars or on internet sites or any search firm engagement) that are not directed or focused specifically on Company Employees, or (iv) hire any Potential ARG Employee.

7.10.3     Non-Competition . Each Seller covenants and agrees that for a period of 30 months following the Closing Date, such Seller shall not, and shall cause its Affiliates not to, directly or indirectly, (i) engage in the Business, or own or control any Person engaged in the Business, in any territory or jurisdiction where the Company or any Company Subsidiary conducts the Business as of the date of this Agreement or (ii) disparage publicly or in the media (or privately to customers or suppliers of the Business) the Company or any Company Subsidiary, or their respective management, operations, business, products or employees; provided , that (x) neither the ownership or operation of the Permitted ARG Business nor the acquisition and/or ownership of up to 20% of any class of securities of any Person engaged in the Business shall be deemed to be a violation of the provisions of the foregoing clause (i), and (y) commencing an Action, making court filings, providing testimony or documents or taking other actions necessary in connection with, or incident to, the defense or prosecution of any Action in which the interests of Sellers are adverse to Buyers, the Company or any Company Subsidiary (including any Action arising from or relating to this Agreement or the Transactions or other documents and agreements entered into in connection with this Agreement) shall not be deemed to be a violation of the provisions of the foregoing clause (ii). Notwithstanding anything to the contrary contained above, this Section 7.10.3 is not binding on and shall not apply to: (a) any mergers and acquisitions activities (including any divestiture) involving LKQ or any of its Affiliates, including the taking of an ownership interest in all or any part of any Person or business that is engaged in the Business or including receiving a note from, or giving a loan to any entity that purchases assets and/or stock from LKQ and/or its Affiliates and is, directly or indirectly, engaged in the Business, so long as either (x) LKQ or its applicable Affiliate does not take a direct controlling interest in the entity conducting the Business or (y) the Business conducted by such acquired business represents less than 25% of the revenues of the acquired business for its most recently completed fiscal year, (b) Affiliates or businesses of LKQ at such time as they are no longer an Affiliate or business of LKQ, or (c) any commercial transaction in the ordinary course of business (excluding mergers, acquisitions and divestitures, but including purchases and sales of products and licenses of technology) between LKQ and its Affiliates or businesses and any Persons directly or indirectly engaged in the Business. For purposes of this Section 7.10 , a direct controlling interest means the right to appoint a majority of the board of directors of the entity conducting the Business.


7.10.4     Buyer Nondisclosure . Each Buyer covenants and agrees that for a period of two years following the Closing Date, such Buyer shall not, except in connection with the Business, disclose or use, directly or indirectly, any ARG Business Confidential Information except in connection with any Buyer’s, the Company’s or any Company Subsidiary’s continuing commercial relationship with any Seller and its



[NEWYORK 3251393_44]



Affiliates, including pursuant to the Supply Agreement, or except as otherwise provided below. If the disclosure of ARG Business Confidential Information is required by any Legal Requirement, each Buyer agrees to use its commercially reasonable efforts to provide Sellers an opportunity to object, at their sole expense, to the disclosure and shall give Sellers as much prior written notice as is commercially reasonable under the circumstances. Nothing in this Section 7.10.4 shall limit the disclosure of any ARG Business Confidential Information (i) to the extent required by applicable Legal Requirements ( provided , that, unless legally prohibited, Buyers shall give Sellers prior notice of such legally compelled disclosure as promptly as reasonably practicable), (ii) in connection with the defense or prosecution of any Action or claim (including any Action arising from or relating to this Agreement or the Transactions or other documents and agreements entered into in connection with this Agreement (whether or not any Seller is a party)), (iii) as necessary in connection with the preparation, filing and delivery of Tax Returns, insurance claims and/or financial reports, or (iv) to Representatives of Buyers and their Affiliates who have a need to know in connection with any of the foregoing. For purposes of this Section 7.10.4 , “ ARG Business Confidential Information ” means all confidential or proprietary information of any Seller or any of its Affiliates exclusively relating to the Permitted ARG Business or the property and assets of any Seller and its Affiliates exclusively used in the Permitted ARG Business; provided , that “ARG Business Confidential Information” shall not include information which (i) has been, is or becomes generally available to the public other than as a result of a disclosure in violation of Buyers’ obligations under this Section 7.10.4 , (ii) information that was or is independently developed by any Buyer or any of its Affiliates or Representatives, or (iii) information which becomes known to any Buyer or any of its Affiliates or Representatives after the date hereof other than as a result of a disclosure in violation of any Buyer’s obligations under this Agreement; “ARG Business Confidential Information” specifically includes information relating to the products, services, strategies, pricing, customers, representatives, suppliers, distributors, technology, finances, employee compensation, computer software and hardware, inventions, developments and trade secrets of Sellers and their Affiliates that exclusively relate to the Permitted ARG Business.

7.10.5     Buyer Non-Solicitation . Each Buyer covenants and agrees that for a period of 30 months following the Closing Date, such Buyer shall not, and shall cause its Affiliates not to, without the prior written consent of Sellers, either directly or indirectly, solicit or induce, or attempt to solicit or induce, whether or not for consideration, any ARG Employee set forth on Schedule 7.10.5 to terminate or abandon his or her employment with any Seller or any of its Affiliates; provided , however , that the foregoing restrictions shall not restrict the right of Buyers or their Affiliates to (i) solicit any employee whose employment is terminated by any Seller or its Affiliates or who has not been employed by any Seller or its Affiliates for the nine-month period prior to the date of such solicitation or hiring, (ii) hire any individual not solicited in violation of this Section 7.10.5 , or (iii) conduct general solicitations for employees or public advertisements of employment opportunities (including general solicitations in any local, regional or national newspapers or other publications or circulars or on internet sites or any search firm engagement) that are not directed or focused specifically on ARG Employees.




[NEWYORK 3251393_44]




7.10.6     Interim Relief . Sellers and Buyers acknowledge and agree that damages alone would be an insufficient remedy for Buyers, the Company and the Company Subsidiaries, on the one hand, and Sellers, on the other hand, and that Buyers, the Company and the Company Subsidiaries, on the one hand, and Sellers, on the other hand, would suffer irreparable injury, if Sellers, on the one hand, or Buyers, the Company or the Company Subsidiaries, on the other hand, violates any applicable provision of this Section 7.10 . Accordingly, Buyers, the Company or any Company Subsidiary, on the one hand, and Sellers, on the other hand, upon application to a court of competent jurisdiction, will be entitled to injunctive relief to enforce the provisions of this Section 7.10 . Buyers’, the Company’s and the Company Subsidiaries’, on the one hand, and Sellers’, on the other hand, right to injunctive relief pursuant to this Section 7.10 will be in addition to any other remedies they may have at law or in equity.

7.10.7     Reasonable Limitations . Sellers, Buyers and the Company understand and believe that the limitations as to time, geographical area and scope of activity contained in this Section 7.10 are reasonable and necessary to protect the legitimate interests of Buyers, the Company, the Company Subsidiaries and the Company Joint Ventures and constitute a material inducement to Buyers and Sellers to enter into this Agreement and consummate the Transactions. In the event that any covenant contained in this Section 7.10 should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Legal Requirements in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Legal Requirements. The covenants contained in this Section 7.10 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.


7.11     Release . Effective as of the Closing, each Seller, on behalf of itself and its controlled Affiliates and their respective officers, directors, managers, equityholders, members, partners, heirs, beneficiaries, successors and permitted assigns (the “ Releasing Parties ”) hereby irrevocably and unconditionally waives, releases and forever discharges the Company and the Company Subsidiaries and each of their respective past and present directors, managers, officers, employees, agents and other Representatives (the “ Released Parties ”) from any and all claims, Actions, causes of action, suits, debts, Losses, Liabilities or other obligations of any kind or nature whatsoever (collectively, “ Claims ”) of any Releasing Party against the Released Parties arising on or prior to the Closing Date or on account of or arising out of any matter, cause or event occurring on or prior to the Closing Date, in each case, solely to the extent such Claim is related to (i) the ownership of the Company Interests by Sellers or (ii) any Contractual Obligation of the Company or any Company Subsidiary that does not continue after the Closing; provided , however , that nothing contained in this Section 7.11 will be interpreted to release any Released Party from any claims (a) arising under this Agreement, any of the Transaction Documents or any other agreement or certificate contemplated hereby, (b) if such Releasing Party was an employee of the Company or any of the Company Subsidiaries prior to Closing,



[NEWYORK 3251393_44]



relating to compensation or benefits under any Company Plan of the Company or any Company Subsidiary that are due but unpaid prior to the Closing Date, (c) any rights of recovery under any of the insurance policies of the Company by reason of the Releasing Party’s status as a director, officer, employee or agent of the Company or any of the Company Subsidiaries, or as a trustee or fiduciary of any benefit plan, in each instance with respect to periods prior to the Closing Date, (d) rights under any applicable workers’ compensation statutes arising out of compensable job related injuries occurring prior to the Closing Date, (e) any rights to indemnification for serving as an officer, director, agent or employee of the Company, or serving at the request of the Company as a trustee or fiduciary of any benefit plan, provided that such rights exist as a matter of law or contract, (f) any claim which, as a matter of applicable Legal Requirements, cannot be released, in each case, if applicable, or (g) any right of contribution, indemnification or advancement of expenses under the Organizational Documents of the Company or any Company Subsidiary or under any directors’ and officers’ insurance policy of the Company or any Company Subsidiary in effect prior to the Closing or any “tail policy” thereof that is produced in connection with the Closing.

7.12     Certain Notices; Financial Information .


7.12.1    From the date hereof until the earlier of Closing or the termination of this Agreement in accordance with its terms, Sellers and the Company, on the one hand, and Buyers, on the other hand, shall notify the other Party, as applicable, of (i) any written communication from any Governmental Authority to the Company or any of the Company Subsidiaries in connection with the Transactions, (ii) any written notice received by the Company or any Company Subsidiary from any Person alleging that the consent of such Person is or may be required in connection with the Transactions, (iii) any material Action commenced against the Company or any of the Company Subsidiaries relating to or involving or otherwise affecting the Business, (iv) the commencement of any Action that relates to the consummation of the Transactions, or (v) the breach of any representation, warranty or covenant of such Party in this Agreement that would reasonably be expected to cause any of the conditions to Closing set forth in Section 8 not to be satisfied. No information or knowledge obtained by any Party in any notification pursuant to this Section 7.12 shall (i) affect or be deemed to affect or modify any representation or warranty contained herein, the covenants or agreements of the Parties or the conditions to the obligations of the Parties under this Agreement or have any effect on the determination of the satisfaction of the conditions to Closing set forth in Section 8 or otherwise prejudice in any way the rights and remedies of Buyers hereunder, including pursuant to Section 10 , (ii) be deemed to affect or modify Buyers’ reliance on the representations, warranties, covenants and agreements made by Sellers in this Agreement, or (iii) be deemed to amend or supplement the Company Schedules or prevent or cure any misrepresentation, breach of warranty or breach of covenant by Sellers.

7.12.2     Financial Delivery Requirements .

7.12.2.1    Sellers shall deliver to Buyers true, correct and complete copies of the originals of the 2015 Audited Financial Statements as soon as practicable, but in any event no later than five Business Days prior to the Closing Date.



[NEWYORK 3251393_44]




7.12.2.2    If the Closing Date has not occurred before April 25, 2017 (the “ CNBV Date ”), Sellers shall deliver to Buyers true, correct and complete copies of the originals of the 2016 Audited Financial Statements on the CNBV Date. Buyers shall reimburse Sellers for the reasonable and documented costs and expenses of the preparation of the 2016 Audited Financials if the conditions to Closing set forth in Section 8 and Section 9 (other than those conditions that by their nature are to be fulfilled at the Closing, but subject to the fulfillment or waiver of such conditions) (a) have not been fulfilled or waived in accordance with this Agreement prior to April 18, 2017 but are fulfilled or waived in accordance with this Agreement prior to April 20, 2017. Otherwise, Sellers shall be responsible for any costs and expenses of the preparation of the 2016 Audited Financials.


7.12.2.3    Until the earlier of Closing or the termination of this Agreement in accordance with its terms, Sellers shall deliver to Buyers, as soon as practicable, but in any event within 30 Business Days after the end of each of the first three fiscal quarters of 2017, true, correct and complete copies of the originals of the 2017 Unaudited Financial Statements for such fiscal quarter, as applicable.
    
7.13     Termination of Affiliate Agreements; Intercompany Arrangements .

7.13.1    Except as set forth in Section 7.13.2 , at or prior to the Closing, the Company and the Company Subsidiaries (and, as applicable, Sellers or any of their Affiliates) shall terminate the Contractual Obligations identified on Schedule 4.18 .

7.13.2    Notwithstanding anything herein to the contrary, during the period from the date hereof through the Closing Date, Sellers and their Affiliates shall be permitted to manage all Intercompany Accounts between the Company or any Company Subsidiary, on the one hand, and Sellers or any of their Affiliates (excluding the Company and the Company Subsidiaries), on the other hand, in the sole discretion of Sellers but without imposing any Liability on the Company or any Company Subsidiary that would survive the Closing; provided that Sellers shall cause, in a manner determined by Sellers in their sole discretion, all such accounts to be entirely cancelled effective prior to or as of the Closing, except as contemplated by Section 7.23 .

7.14     ARG Business Distribution .

7.14.1    Sellers shall, and shall cause the Company and any Company Subsidiary to, use reasonable best efforts to (a)(i) finalize and execute the necessary documentation, as reasonably determined by Sellers, to distribute or otherwise transfer the Distributed ARG Business pursuant to (A) the distribution or transfer, however effected, of (x) assets (other than Intellectual Property) that primarily relate to the Distributed ARG Business and (y) Intellectual Property that exclusively relates to the Distributed ARG Business and is set forth on Schedule 7.14.6 , (B) the assumption of Liabilities in connection with or relating to the Distributed ARG Business, and (C) the transfer of Auto Glass, in each case to an LKQ Group Member, (ii) offer employment



[NEWYORK 3251393_44]




with an LKQ Group Member to, or transfer to an LKQ Group Member the employment of, the Persons set forth under the heading “Pittsburgh Glass Works Employees” on Schedule 7.14.1 (which shall include all employees primarily devoted to the Distributed ARG Business that are on disability or any other leave of absence) (such Persons and employees, together with the Persons set forth under the heading “PGW Auto Glass Employees” on Schedule 7.14.1 , the “ Potential ARG Employees ” and such Persons that are employed by Auto Glass immediately following the ARG Business Distribution, the “ ARG Employees ”); such transfer and commencement of employment to be effective prior to the Closing and (iii) complete the spinoffs as contemplated in Section 7.14.8 ; such spinoffs to be effective prior to or after the Closing (collectively, the “ ARG Business Distribution ”), and (b) keep Buyers reasonably informed of the status of the ARG Business Distribution. For the avoidance of doubt, an ARG Employee shall not constitute a Company Employee. The Company will update Schedule 7.14.1 prior to the ARG Business Distribution to reflect new hires and terminations that occur between signing and Closing and will provide Buyer with an updated Schedule 7.14.1 to reflect such updates prior to Closing.


7.14.2    Sellers and their Affiliates shall assume all Liabilities primarily relating to the Distributed ARG Business pursuant to the ARG Business Distribution and shall reimburse Buyers and their Affiliates for any such Liabilities incurred or sustained by, or imposed upon, Buyers and their Affiliates.

7.14.3    If, following the Closing, Sellers or Buyers determine, in consultation with the other Party, that certain assets or Liabilities that were contemplated to be transferred pursuant to Sections 7.14.1 or 7.14.2 , were not transferred to, or assumed by, an LKQ Group Member pursuant to the ARG Business Distribution, then Buyers shall cause the Company or the applicable Company Subsidiary to transfer such assets to Sellers or their designated Affiliate, or Sellers or their designated Affiliate shall assume such Liability, for no additional consideration but otherwise at Sellers’ sole expense.

7.14.4    If, following the Closing, Buyers or Sellers determine, in consultation with the other Party, that (x) certain assets (other than Intellectual Property) or Liabilities primarily relating to the Business, (y) Intellectual Property relating to the Business or (z) Liabilities not contemplated to be transferred pursuant to Sections 7.14.1 or 7.14.2 were transferred to, or assumed by, an LKQ Group Member pursuant to the ARG Business Distribution, then Sellers shall, or shall cause their applicable Affiliate to, transfer such assets to the Company or a Company Subsidiary, or the Company or a Company Subsidiary shall assume such Liability, for no additional consideration but otherwise at Sellers’ sole expense.

7.14.5     Shared Contracts .

7.14.5.1    The Parties acknowledge and agree that the Company and the Company Subsidiaries are parties to certain contracts that relate to the operation or conduct of both the Business and the Distributed ARG Business that will remain with the Company or Company Subsidiary that is the existing contracting party under such contract following the Closing and set forth on Schedule 7.14.5



[NEWYORK 3251393_44]


(the “ ARG Shared Contracts ”). The Parties acknowledge and agree that if the Company or a Company Subsidiary is not successful in obtaining prior to the Closing a consent or approval of a third party to an ARG Shared Contract that requires consent in connection with the ARG Business Distribution (each, an “ ARG Restricted Contract ”), then the Company or Company Subsidiary party to such ARG Restricted Contracts shall continue to be the contracting party under such ARG Restricted Contracts and, unless prohibited by the explicit terms of the applicable ARG Restricted Contract, the Parties shall use commercially reasonable efforts to establish, at Sellers’ sole cost and expense, an agency-type relationship or other similar arrangement reasonably satisfactory to the Parties under which Auto Glass (as an Affiliate of the LKQ Group) or any other LKQ Group Member identified to Buyers is provided with substantially similar rights and benefits as were held under the ARG Restricted Contracts prior to the ARG Business Distribution on terms and conditions substantially similar to those contained in such ARG Restricted Contracts in effect immediately prior to the ARG Business Distribution. The Parties acknowledge and agree that following the Closing, the Company and the Company Subsidiaries shall not have any obligations to any LKQ Group Member with respect to the ARG Restricted Contracts other than those set forth in this Section 7.14.5.1 and any additional actions recommended or advisable with respect to the ARG Shared Contracts as they relate to the Distributed ARG Business or the ARG Restricted Contracts will require the mutual agreement of the Parties.


7.14.5.2    The Parties acknowledge and agree that to the extent it is determined by the Parties that if Auto Glass, PGW Canada or another LKQ Group Member is a party to a contract that relates to the operation or conduct of both the Business and the Distributed ARG Business, that such contract will remain with the applicable LKQ Group Member that is the existing contracting party under such contract following the Closing (each, an “ OEM Shared Contract ”). The Parties acknowledge and agree that if such LKQ Group Member is not successful in obtaining prior to the Closing a consent or approval of a third party to an OEM Shared Contract that requires consent in connection with the continuing operation of the Business following the Closing (each, an “ OEM Restricted Contract ”), then such LKQ Group Member shall continue to be the contracting party under such OEM Restricted Contract and, unless prohibited by the explicit terms of such OEM Restricted Contract, the Parties shall use commercially reasonable efforts to establish, at Buyers’ sole cost and expense, an agency-type relationship or other similar arrangement reasonably satisfactory to the Parties under which the Company or the Company Subsidiaries are provided with substantially similar rights and benefits as were held under the OEM Restricted Contracts prior to the Closing on terms and conditions substantially similar to those contained in such OEM Restricted Contracts in effect immediately prior to the Closing. The Parties acknowledge and agree that following the Closing, the LKQ Group Members shall not have any obligations to Buyers, the Company or the Company Subsidiaries with respect to the OEM Restricted Contracts other than those set forth in this Section 7.14.5.2, and any additional actions recommended or




[NEWYORK 3251393_44]




advisable with respect to the OEM Shared Contracts as they relate to the Business or the OEM Restricted Contracts will require the mutual agreement of the Parties.


7.14.6    Notwithstanding anything to the contrary in this Agreement, no assets of the Company or a Company Subsidiary will transfer with the Distributed ARG Business (including with Auto Glass or PGW Canada) other than as set forth in Sections 7.14.1 or 7.14.3 , nor shall Sellers or their Affiliates have any rights to such assets or enter into any Contractual Obligation whereby a third party will receive rights to such assets.

7.14.7    Prior to Closing, Sellers shall, or shall cause the Company or the Company Subsidiaries to, terminate the employment of each Potential ARG Employee (a) to whom an offer of employment with an LKQ Group Member must be made pursuant to Section 7.14.1 above and (b) who does not accept an offer prior to Closing.

7.14.8    Following the date hereof, Sellers, the Company and the Company Subsidiaries shall take the necessary corporate action to approve the transactions described in this Section 7.14.8 and cooperate in good faith and use commercially reasonable efforts to take such actions as are necessary to effectuate the following:

7.14.8.1    The spinoff of assets and Liabilities from the Pittsburgh Glass Works Retirement Income Plan (the “ PGW RIP ”) associated with the accrued benefits of ARG Employees and former employees of Sellers or any of their Subsidiaries who were primarily devoted to the Distributed ARG Business (the “ Former ARG Employees ”) into either a new defined benefit qualified pension plan that is sponsored by Sellers or an Affiliate thereof (other than the Company or a Company Subsidiary) or the PGW Auto Glass, LLC Retirement Income Plan, which is an existing defined benefit qualified retirement plan sponsored by Auto Glass. As soon as reasonably practicable following the date hereof, (A) the Parties shall cooperate in good faith to establish an appropriate timeline for the spinoff from the PGW RIP, and (B) with respect to each plan into which such assets and Liabilities are to be spun off, Sellers shall provide to Buyers a favorable determination letter from the IRS regarding the qualified status of such plan, provided , however , that if such plan is a newly established plan, Sellers shall provide such favorable determination letter to Buyers as soon as reasonably practicable following receipt of such letter from the IRS.

7.14.8.2    The spinoff of assets and account balances (including the in-kind spinoff of any outstanding loan notes within such account balances) from the Pittsburgh Glass Works, LLC Employee Savings Plan (the “ PGW Savings Plan ”) which are held by and in the name of ARG Employees and Former ARG Employees and the trust-to-trust transfer of such assets and account balances into the LKQ Corporation Employees’ Retirement Plan, which is an existing defined contribution qualified retirement plan sponsored by Sellers or an Affiliate thereof (other than the Company or a Company Subsidiary). The spinoff from the PGW Savings Plan shall be completed as soon as practicable, but not later than 120 days after Closing. As soon as reasonably practicable following the date hereof, with respect to each plan into which such assets and account balances are


[NEWYORK 3251393_44]



to be spun off, Sellers shall provide to Buyers a favorable determination letter from the IRS regarding the qualified status of such plan.

7.14.8.3    The spinoffs described above shall be made in compliance with Code Section 414(l) and applicable Treasury regulations thereunder and all other applicable Legal Requirements. The Parties agree to use commercially reasonable efforts to implement all of the transactions described in this Section 7.14.8 prior to the Closing. Notwithstanding anything in this Agreement to the contrary, each Buyer acknowledges and agrees that the completion of the spinoffs described in this Section 7.14.8 is not a condition to Closing or the consummation of the Transactions.

7.14.8.4    Effective no later than the Closing, Sellers shall, or shall cause the Company or the Company Subsidiaries to, effect all amendments to the PGW RIP and PGW Savings Plan necessary and appropriate to implement the transactions described in this Section 7.14.8 . Prior to effecting any such amendment or making any communication to PGW RIP or PGW Savings Plan participants regarding the transactions described in this Section 7.14.8 , Sellers shall provide to Buyers drafts of such amendments or communications, as applicable, prepared by Sellers and their Affiliates, for review and approval by Buyers, which such approval shall not be unreasonably withheld, conditioned or delayed. Following the Closing, the Parties shall reasonably cooperate in good faith with respect to any communications to PGW RIP or PGW Savings Plan participants regarding the transactions described in this Section 7.14.8 .

7.14.8.5    The Parties agree that for purposes of this Section 7.14.8 they will use commercially reasonable efforts to retain the services of the actuary currently providing services to the PGW RIP for purposes of effectuating the spin-off contemplated hereunder; provided that Buyers shall be permitted to engage the services of an additional reputable independent third-party actuary to review and approve (such approval not to be unreasonably withheld, conditioned or delayed) any actions taken in connection therewith.

7.14.8.6    With respect to each of the PGW RIP and the PGW Savings Plan, as of the Closing, Sellers shall assume and be responsible for all Liabilities under such plan for benefits accrued by each ARG Employee and Former ARG Employee that was a participant in such plan at any time and, following the Closing, none of Buyers, their Affiliates nor such plan shall have any further responsibility for such Liabilities, provided that the PGW RIP shall pay to the ARG Employees and Former ARG Employees all benefit payments that are required to be paid thereunder prior to the date of the initial transfer of assets from the PGW RIP to Sellers’ or their Affiliates’ defined benefit qualified pension plan in connection with the spinoff contemplated hereunder, and such initial transfer of assets shall be appropriately reduced to reflect such payment of benefits. The defined benefit qualified pension plan of Sellers or their Affiliates into which the relevant PGW RIP assets and Liabilities are spun off shall be responsible for



[NEWYORK 3251393_44]




paying to the ARG Employees and Former ARG Employees all benefit payments that are required to be paid on or after the date of such initial transfer of assets.

7.14.8.7    Notwithstanding any other provision of this Agreement to the contrary, each Party shall be responsible for all out-of-pocket expenses (including, for the avoidance of doubt, legal fees) incurred by such Party in connection with the actions contemplated under this Section 7.14.8 ; provided , however , that Sellers shall promptly reimburse Buyers for any such out-of-pocket expenses reasonably incurred by Buyers in connection with any (i) written request by Sellers for Buyers and their Subsidiaries’ cooperation to take, complete or review any of the actions contemplated under this Section 7.14.8 , or (ii) action contemplated under this Section 7.14.8 taken by Buyers or their Subsidiaries (x) as a result of Sellers’ failure to take or complete, or commercially unreasonable delay in taking or completing, any such action or (y) due to Sellers’ inability to take or complete such action, in each case after a 15-day period following receipt by Sellers of written notice from Buyers identifying such failure or inability and Sellers’ failure to cure such identified failure or inability during such 15-day period.

7.15     Maintenance of Registered Intellectual Property.

7.15.1    Sellers or the Company, at their own expense, shall prior to the Closing, pay any renewal or maintenance amounts that are due prior to the Closing in connection with the Registered Intellectual Property.

7.15.2    To the extent such information has not been previously provided, the Company shall use good faith efforts to give Buyers reasonable prior notice of any filings or fees due within 60 days following the Closing Date with respect to each item of Registered Intellectual Property and shall permit Buyers to communicate directly with the Company’s local intellectual property counsel responsible for the prosecution and maintenance of Registered Intellectual Property in order to facilitate a reasonable transition.

7.15.3    Buyers waive Sellers’ compliance with Section 7.15.1 and Section 7.15.2 as conditions to Closing.


7.16     Resignations . At the Closing, Sellers shall deliver to Buyers written resignation and release letters, effective as of the Closing Date, of each of the officers and directors of the Company and the Company Subsidiaries requested by Buyers in writing at least two Business Days prior to the Closing, effectuating his or her resignation from such position as a member of the board of directors (or equivalent governing body) or as officer (although not as an employee unless otherwise so required pursuant to this Agreement), in the form attached as Exhibit H .

7.17     Further Assurances . Following the Closing, and subject to the terms and conditions of this Agreement, each Buyer and Seller shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments and assurances and take such other actions as may reasonably be requested to carry out and give effect to the Acquisition


[NEWYORK 3251393_44]



and the other Transactions. Without limiting the generality of the foregoing, from and after the Closing, if (a) any Seller or any of its Affiliates receives any funds, mail, courier package, facsimile transmission, purchase order, invoice, service request or other document intended for or otherwise the property of the Company, any Company Subsidiary or any Company Joint Venture (other than any of the foregoing (except funds) primarily relating to the Distributed ARG Business), or (b) any Buyer, the Company or any Company Subsidiary receives any funds, mail, courier package, facsimile transmission, purchase order, invoice, service request or other document primarily relating to the Distributed ARG Business, the receiving Party shall promptly (i) notify and (ii) forward the pro rata portion of such funds or such documents to, the other Party. For the avoidance of doubt, each Party acknowledges and agrees that there is no right of set-off with respect to any funds received, whether in connection with a dispute under this Agreement or otherwise.


7.18     Financing .

    
7.18.1    Buyers shall use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and obtain the Financing on the terms and subject only to the conditions set forth in the Financing Documents, including using reasonable best efforts to (i) maintain in effect and comply with the terms of the Financing Documents, (ii) negotiate and enter into the other definitive loan documents with respect to the Debt Financing on the terms and subject only to the conditions set forth in the Debt Documents, (iii) satisfy on a timely basis all conditions applicable to Buyers in the Financing Documents and the definitive agreements relating thereto, (iv) upon the satisfaction or waiver of the conditions to Buyers’ obligations to consummate the Transactions, consummate the Financing and cause the Financing Sources and the other Persons committed to fund the Financing to fund the Financing at the Closing, (v) enforce their rights under the Financing Documents and the definitive agreements relating to the Financing, (vi) pay in full any amounts required to be paid pursuant to the terms of the Financing Documents as they become due and payable on or prior to the Closing Date and (vii) otherwise comply with Buyers’ covenants and other obligations under the Financing Documents and the definitive agreements relating to the Financing. Buyers shall not, without the prior written consent of Sellers, agree to or permit any termination of or amendment, supplement or modification to be made to, or grant any waiver of any provision under, the Financing Documents or the definitive agreements relating to the Financing if such termination, amendment, supplement, modification or waiver would (A) reduce the aggregate amount of any portion of the Financing such that the aggregate amount of the Financing would be below the amount required to pay the Required Amount, (B) impose new or additional conditions precedent to the availability of the Financing or otherwise expand, amend or modify any of the conditions precedent to the Financing in a manner that would reasonably be expected to delay or prevent the funding of the Financing on the Closing Date, or (C) adversely impact the ability of any Buyer to enforce its rights against the other parties to the Financing Documents or the definitive agreements with respect to the Financing. Notwithstanding the foregoing, Buyers may amend or modify the Debt Documents to add lenders, lead arrangers, bookrunners, syndication agents or similar entities (including in replacement of a Financing Source) so long as such amendment or modification is in accordance with the Debt Documents as of date of this




[NEWYORK 3251393_44]



Agreement. Buyers shall promptly deliver to Sellers copies of any amendment, modification, supplement, consent or waiver to or under any Financing Document of the definitive agreements relating to the Financing promptly upon execution thereof.

7.18.2    Buyers shall provide Sellers drafts reasonably in advance of the execution and thereafter complete, correct and executed copies of the material definitive documents for the Debt Financing not delivered upon execution of this Agreement. Buyers shall give Sellers prompt notice of (i) any material breach, default, termination, cancellation or repudiation by any party to any of the Financing Documents or the definitive agreements related to the Financing of which any Buyer becomes aware, (ii) receipt by any Buyer of any written notice or other written communication from any Financing Source with respect to any (A) material breach, default, termination, cancellation or repudiation by any party to any of the Financing Documents or any definitive agreement related to the Financing of any provisions of the Financing Documents or any definitive agreement related to the Financing or (B) material dispute or disagreement between any Buyer and any Financing Source regarding the Financing, and (iii) the occurrence of an event or development that could reasonably be expected to adversely impact the ability of any Buyer to obtain all or any portion of the Financing necessary to fund the Required Amount on the terms and in the manner contemplated by the Financing Documents. If any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated in the Debt Documents, Buyers shall promptly notify Sellers in writing and Buyers shall use their reasonable best efforts to arrange and obtain, as promptly as practicable, in replacement thereof, alternative financing from the same and/or alternative sources in an amount sufficient to fund the Required Amount with terms and conditions not less favorable to Buyers than the terms and conditions set forth in the Debt Documents. Buyers shall deliver to Sellers true and complete copies of the alternative debt commitment letters (including fee letters) pursuant to which any such alternative source shall have committed to provide any portion of the Debt Financing (except in the case of customary fee letters where amounts and other economic terms, none of which could adversely affect the conditionality, enforceability or amount or availability of any such alternative financing, may be redacted). For purposes of this Agreement, references to (x) the “Financing” shall include the financing contemplated by the Financing Documents as permitted to be amended, supplemented, modified or replaced by this Section 7.18 , (y) the “Debt Documents” shall include such documents as permitted to be amended, supplemented, modified or replaced by this Section 7.18 and (z) the “Debt Financing” shall include the debt financing contemplated by the Debt Documents as permitted to be amended, supplemented, modified or replaced by this Section 7.18 .

7.18.3    From the date of this Agreement through the earlier of the Closing or the termination of this Agreement in accordance with its terms, Sellers shall use reasonable best efforts to provide, and to cause their Representatives to provide, in each case at Buyers’ sole cost and expense, Buyers and their Affiliates with such reasonable cooperation and assistance as is customary and reasonably requested by Buyers in connection with the arrangement of the Debt Financing necessary and reasonably requested by Buyers, including using reasonable best efforts to (i) assist Buyers with the preparation by Buyers and the Financing Sources of the Marketing Material (including





[NEWYORK 3251393_44]



“public” and “private” versions) reasonably required in connection with the Debt Financing, including the Required Information; (ii) as promptly as practicable, deliver to Buyers the Required Information prior to the Closing Date; (iii) (A) assist in preparation for and participate in the Marketing Efforts at reasonable times and locations mutually agreed, (B) upon reasonable prior notice, participate in one bank meeting at a mutually agreed location with potential Financing Sources, and (C) ensure that the Financing may benefit from any existing lending relationships of the Company and the Company Subsidiaries; (iv) execute and deliver as of, but not prior to, the Closing customary definitive financing documents and other certificates or documents as may be reasonably requested by Buyers, including certificates, provided that (A) none of the documents or certificates shall be executed and/or delivered except in connection with the Closing, (B) the effectiveness of the documents and certificates shall be conditioned upon, or become operative after, the occurrence of the Closing, and (C) no liability shall be imposed on any Seller or the Company or any Company Subsidiaries or any of their respective officers or employees involved prior to the Closing Date; and (v) cooperate reasonably with the Financing Sources’ due diligence of the Business, as reasonably required by any Governmental Authority with respect to the Financing under applicable “know your customer” and Anticorruption Laws, Export Control and Sanctions Laws and AML Laws, including the USA PATRIOT Act of 2001, that has been reasonably requested by Buyers in writing at least 10 Business Days prior to the Closing Date. Each Seller hereby consents to the use of the logos of the Company and Company Subsidiaries that are set forth on Schedule 7.18.3 , in connection with the Financing if such logos are used solely in a manner that is not intended to or reasonably likely to harm or disparage Sellers or their Affiliates or the reputation or goodwill of Sellers or their Affiliates, subject to Sellers’ prior written consent (not to be unreasonably withheld, conditioned or delayed). Sellers will, upon the reasonable written request of Buyers, use reasonable best efforts to periodically update any necessary information (to the extent it is available) to be included in any Marketing Material, so that Buyers may ensure that any such information does not contain any material inaccuracy. Buyers may share non-public or confidential information regarding the Company, any Company Subsidiary, any Company Joint Venture or the Business with the Financing Sources, and Buyers and the Financing Sources may share such information with potential financing sources in connection with any Marketing Efforts, in each case, provided that the recipients of such information agree to customary confidentiality arrangements that acknowledge that such information may contain material non-public information and prohibit the further disclosure or use of such information and that are otherwise in a form reasonably acceptable to Sellers.

7.18.4    Nothing in this Section 7.18 shall require such cooperation to the extent it would (i) unreasonably interfere with or otherwise unreasonably disrupt the conduct of the Company’s or a Company Subsidiary’s business or (ii) require any Seller, the Company, a Company Subsidiary or any of their respective Affiliates to pay any fee, reimburse any expenses or otherwise incur any Liability or give any indemnities (other than to the extent Buyers agree to reimburse the applicable Seller in respect thereof pursuant to Section 7.18.6 ). Buyers agree that the execution by Sellers of any documentation in connection with the Financing will be subject to the consummation of the Transactions at Closing and such documents will not take effect prior thereto. For the




[NEWYORK 3251393_44]


avoidance of doubt, none of the Sellers, Company or Company Subsidiaries or their respective officers, directors or employees shall be required to execute or enter into or perform any agreement with respect to the Financing contemplated by the Financing Documents that is not contingent upon the Closing or that would be effective prior to the Closing, and no officers, directors or employees of the Company that will not be continuing as such after Closing shall be required to execute or enter into or perform any agreement with respect to the Financing.

7.18.5    Notwithstanding anything in this Agreement to the contrary, each Buyer acknowledges and agrees that the receipt of the Financing is not a condition to the Closing or the consummation of the Transactions and (ii) the condition set forth in Section 8.1.2 , as it applies to each Seller’s obligations under this Section 7.18 , shall be deemed satisfied unless any Seller has knowingly and willfully materially breached its obligations under this Section 7.18 . Regardless of whether or not the Financing has been achieved, Closing shall occur as provided in Section 2.5 upon satisfaction of all of the conditions precedent under Sections 8 and 9 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions).

7.18.6    Buyers shall: (i) promptly, upon request by Sellers, reimburse Sellers for all reasonable and documented out of pocket costs and expenses (including reasonable fees and expenses of legal counsel of Sellers and auditors of Sellers) incurred by Sellers or their Representatives in connection with the Financing to the extent incurred as a result of the cooperation of Sellers and their Representatives contemplated by this Section 7.18 ; provided , that Sellers shall not be reimbursed for any such costs and expenses that would have otherwise been required to have been incurred by Sellers to consummate the Acquisition had no Financing been obtained by Buyers (for example, delivery of the 2015 Audited Financial Statements), and (ii) indemnify and hold harmless Sellers, the Company and Company Subsidiaries and their respective Representatives from and against any and all Losses suffered or incurred by any of them in connection with the arrangement of the Financing, the performance of their respective obligations under Section 7.18.3 and any information used in connection therewith, in each case other than to the extent any of the foregoing was suffered or incurred as a result of the gross negligence or willful misconduct of Sellers, the Company or any Company Subsidiaries.

7.19     Termination of Certain Agreements with PGW Canada . The Parties agree that the Contractual Obligations set forth in Schedule 7.19 between the Company and PGW Canada and an Affiliate of Buyer (as the successor to PPG Industries, Inc. and certain of its Subsidiaries under such Contractual Obligations) shall terminate immediately prior to the Closing.


7.20     Insurance Matters .


7.20.1    From and after the Closing Date, at the request of a Buyer, and at Buyers’ expense, subject to Buyers’ compliance with Section 7.20.2 , Sellers shall reasonably cooperate with, and use reasonable best efforts to assist, Buyers in recovering under the LKQ Insurance Policies for claims with respect to the Business existing or arising from any past acts or events occurring or failing to occur or alleged to have



[NEWYORK 3251393_44]



occurred or to have failed to occur for the period beginning on June 1, 2016, through the Closing or any conditions existing or alleged to have existed for the period beginning on June 1, 2016, through the Closing (each, an “ OEM Claim ”).

7.20.2    From and after the Closing Date, Buyers shall, or shall cause the Companies and the Company Subsidiaries to, promptly reimburse the LKQ Group Members for any self-insured retention or deductible amounts paid or payable as a result of OEM Claims against any LKQ Insurance Policy (“ LKQ Reimbursement Amounts ”). LKQ shall submit to Buyers on a monthly basis a statement setting for the LKQ Reimbursement Amounts for the prior monthly period and Buyers shall make payments for such LKQ Reimbursement Amounts due within 30 days following delivery to Buyers by a LKQ Group Member of such monthly statement. Buyers shall reimburse the LKQ Group Member for the pro-rata portion of the third-party administration fees relating or attributable to the OEM Claims for the applicable quarter within 30 days following Buyers’ receipt of the quarterly report provided by the LKQ Group Member’s third-party administrator and a statement calculating Buyers’ pro rata portion of such fees based on claims made in such period.

7.20.3    At the request of a Seller, and at Sellers’ expense, subject to Sellers’ compliance with Section 7.20.4 , Buyers shall reasonably cooperate with, and use reasonable best efforts to assist, Sellers in recovering under the PGW Insurance Policies for claims with respect to the Distributed ARG Business existing or arising from any past acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur for periods prior to June 1, 2016 or any conditions existing or alleged to have existed prior to June 1, 2016 (each, an “ ARG Claim ”).

7.20.4    Sellers shall, or shall cause Auto Glass, PGW Canada or another applicable LKQ Group Member to promptly reimburse Buyers for any self-insured retention or deductible amounts paid or payable as a result of ARG Claims against any PGW Insurance Policy (“ PGW Reimbursement Amounts ”). Buyers shall submit to Sellers on a monthly basis a statement setting for the PGW Reimbursement Amounts for the prior monthly period and Sellers shall make payments for such PGW Reimbursement Amounts on a monthly basis with payment being due within 30 days following delivery to Buyers of such monthly statement. Sellers shall reimburse Buyers for the pro-rata portion of the third-party administration fees relating or attributable to the ARG Claims for the applicable quarter within 30 days following Sellers’ receipt of the quarterly report provided by Buyers’ third-party administrator and a statement calculating Sellers’ pro rata portion of such fees based on claims made in such period.

7.20.5    Due to the operation of aggregate policy limits, the Parties understand that coverage under certain of the LKQ Insurance Policies and the PGW Insurance Policies could be exhausted by one or other of the Parties’ covered insurance claims, or through a combination of the Parties’ covered insurance claims, such that there could be insufficient coverage available for additional claims that would otherwise be entitled to coverage under an LKQ Insurance Policy or PGW Insurance Policy. To address this possibility, the Parties agree that coverage under the LKQ Insurance Policies and PGW



[NEWYORK 3251393_44]



Insurance Policies shall be available to the parties on a “first come, first served” basis; subject to the other terms and conditions of this Section 7.20.5 .

7.20.6    Each of Sellers and Buyers shall use reasonable best efforts to give prompt notice (and in no event less than 10 days) to the other Party if it is making a claim under a LKQ Insurance Policy or PGW Insurance Policy.

7.20.7    No LKQ Group Member shall have any responsibility for obtaining any insurance for the account or benefit of the Company and the Company Subsidiaries that covers the period commencing and continuing after the Closing Date. From and after the Closing Date, Buyers shall be responsible for obtaining and maintaining an insurance program for the Business.


7.21     Letters of Credit .


7.21.1    The letters of credit (the “ Outstanding Letters of Credit ”) in the aggregate maximum amount of $7,451,648 (the “ Outstanding Amount ”) as set forth under item 9 on Schedule 4.10.8 have been issued by the Issuer to the beneficiaries identified under item 9 on Schedule 4.10.8 for the account of the Company and the Company Subsidiaries. Subject to Section 7.21.2 , on or prior to the Closing Date, Buyers shall cause to be issued one or more backstop letters of credit (the “ Backstop Letters of Credit ”) to the Issuer in an aggregate amount equal to the Outstanding Amount, in form and substance satisfactory to the Issuer and Sellers, and drawable by the Issuer conditioned only upon the Issuer’s payment of the related Outstanding Letter of Credit pursuant to a request therefor complying on its face with the terms of such Outstanding Letter of Credit. The Backstop Letters of Credit shall be deemed to be acceptable to Sellers if, and only if, their issuance causes the Issuer to release Sellers from their reimbursement obligations under the Outstanding Letters of Credit (other than any obligations with respect to ongoing fees and the Issuer’s expenses with respect to such Outstanding Letters of Credit which, for the avoidance of doubt, shall be for the account of Sellers) and the Parties shall reasonably cooperate to have the Issuer release Sellers from such reimbursement obligations as promptly as practicable. As promptly as practicable following the Closing, but in no event later than 120 days after the Closing Date, Buyers shall cause the Outstanding Letters of Credit to be replaced and returned to the Issuer for cancellation either by replacement or otherwise.


7.21.2    To the extent the release referred to in Section 7.21.1 does not occur on or prior to the Closing Date, if, at any time after the Closing Date (i) any amounts are drawn on or paid under any Outstanding Letters of Credit and (ii) Sellers or any of their Affiliates are obligated to reimburse the Person making such payment, Buyers agree to jointly and severally indemnify, defend and hold harmless Sellers and their Affiliates against, and reimburse Sellers and their Affiliates for, all such amounts promptly after receipt from Sellers of notice thereof. The indemnity provided in this Section 7.21.2 shall expire with respect to any Outstanding Letter of Credit on such date after the Closing Date on which the Issuer releases Sellers in writing from their obligations in respect of such Outstanding Letter of Credit as referred to in Section 7.21.1 .



[NEWYORK 3251393_44]




7.22     Settlement . To the extent LKQ or any of its Affiliates receives any payment following the Closing pursuant to the contract set forth on Schedule 7.22 , LKQ shall or shall cause its Affiliates to transmit such total payment amount to PGW or the Person designated by PGW within five Business Days following receipt of such payment by wire transfer of immediately available funds to bank accounts that have been designated in writing by Buyers.

7.23     China Joint Venture . The Parties acknowledge and agree that, in accordance with the Equity Joint Venture Agreement of Shandong PGW Jinjing Automotive Glass Co. Ltd., dated as of December 11, 2013, by and between Pittsburgh Glass Works Hong Kong Limited (“ PGW Hong Kong ”) and Shandong Jinjing Science and Technology Stock Co., Ltd, PGW Hong Kong may be required to, or may elect to, make an additional investment in Shandong PGW Jinjing Automotive Glass Co., LTD, a People’s Republic of China entity (the “ China Joint Venture ”) prior to December 31, 2016. Such investment may be in the form of equity, a loan, or a combination thereof, and may be in an aggregate amount up to $3,500,000, provided that any such equity, loan or combination thereof results in an increase in PGW Hong Kong’s ownership interest in the China Joint Venture to no more than 50% (such actual form and amount of the investment, the “ Investment ”). Vitro may elect, on or prior to the date that is 60 days following the Closing Date, to purchase such Investment, in which case the following shall apply:


7.23.1    if Vitro makes such election prior to the Closing Date, then all of the equity interests and loan receivable amounts resulting from the Investment shall continue as assets of PGW Hong Kong at the Closing and the Total Equity Value shall be increased by the full amount (but not less than the full amount) of the Investment;

7.23.2    if Vitro does not make such election by the Closing Date, then any of the equity interests in, or loan receivables owed by, the China Joint Venture resulting from the Investment shall not be included as an asset of any Company or Company Subsidiary at Closing, but shall be transferred and conveyed from PGW Hong Kong to Auto Glass pursuant to the ARG Business Distribution or if the ARG Business Distribution has already occurred, such equity interests or loan receivable shall be transferred and conveyed from PGW Hong Kong to a designated LKQ Group Member; and

7.23.3    if Vitro makes such election following the Closing Date but prior to the date that is 60 days following the Closing Date, then (x) Auto Glass or the relevant LKQ Group Member shall sell, assign, transfer and convey to any Buyer or Affiliate thereof all of the equity interests and loan receivable amounts resulting from the Investment, free and clear of all Liens, and (y) Buyers shall pay (or cause to be paid) the full amount (but not less than the full amount) of the Investment to Auto Glass or the relevant LKQ Group Member by wire transfer of immediately available funds.

In the event of any transfer of the equity interests and loan receivable amounts resulting from the Investment PGW Hong Kong to Auto Glass or an LKQ Group Member, Vitro agrees that such transfer and the continued ownership by any LKQ Group Member of such assets shall not constitute a violation of any of the restrictive covenants contained in this Agreement.


[NEWYORK 3251393_44]



7.24     Supply Agreement . Buyers shall promptly (and in no event later than December 21, 2016) deliver to Sellers, in such form and substance as is reasonable acceptable to Sellers, Schedule 1-Specified Windshields, Schedule 1-Additional Windshields, Schedule 2-Specified Non-Windshield Glass Products, Schedule 2-Additional Non-Windshield Glass Products, and the Special Price List (each as defined in the Supply Agreement) with respect to the calendar year in which the Closing Date occurs.



8.    CONDITIONS TO THE OBLIGATION TO CLOSE OF BUYERS.


The obligation of Buyers to consummate the Acquisition and the other Transactions is subject to the satisfaction, at or prior to the Closing, of all of the following conditions, compliance with which, or the occurrence of which, may be waived prior to the Closing by Buyers:
8.1     Representations, Warranties and Covenants .

8.1.1    (i) Each of the representations and warranties of the Company and Sellers in Sections 4 and 5 (other than the representations and warranties in paragraph (ii) of this Section 8.1.1 ), without taking into account any materiality, Material Adverse Effect or similar phrases contained therein, shall be true and correct, in each case, as of the Closing Date, as if made on the Closing Date (other than those representations and warranties which address matters only as of a particular date, which shall be true and correct as of such date), in each case, except for such failures to be true and correct as would not, individually or in the aggregate, have a Material Adverse Effect, and (ii) each of the representations and warranties of the Company in the first sentence of Section 4.11 , shall be true and correct in all respects as of the Closing Date, as if made on the Closing Date.

8.1.2    Sellers, the Company and the Company Subsidiaries shall have performed and satisfied, in all material respects, all covenants and agreements required by this Agreement to be performed or satisfied by Sellers, the Company and the Company Subsidiaries at or prior to the Closing; provided , however , that, with respect to any such agreements and covenants that are qualified by materiality, Sellers, the Company and the Company Subsidiaries shall have performed or complied with such agreements and covenants, as so qualified, in all respects.
 
8.1.3    Sellers shall have furnished to Buyers a certificate, dated as of the Closing Date, to the effect that the conditions specified in Sections 8.1.1 and 8.1.2 have been satisfied.


8.2     Governmental Authorization; Litigation . All necessary filings pursuant to the HSR Act shall have been made and all applicable waiting periods thereunder shall have expired or been terminated. There shall be in effect no Legal Requirement or Governmental Order (whether temporary, preliminary or permanent) that has the effect of prohibiting the consummation of the Transactions, and no Action instituted by any Governmental Authority seeking to prohibit the consummation of the Transactions or that would cause any of the Transactions to be rescinded following the Closing shall be pending.



[NEWYORK 3251393_44]




8.3     FIRPTA Statement . Sellers shall have provided to Buyers FIRPTA statements in a form reasonably acceptable to Buyers conforming to the applicable requirements of Treasury Regulations Section 1.1445-2(b).

8.4     Escrow Agreement . The Escrow Agreement shall have been executed and delivered by Sellers and the Escrow Agent.

8.5     Lien and Guarantee Releases . Sellers shall have delivered evidence reasonably acceptable to Buyers of (i) pending Lien releases in respect of all Debt under the Credit Agreement, and (ii) releases of the Company and the Company Subsidiaries as guarantors under the Guarantees entered into pursuant to the Credit Agreement and Indentures; provided , however , that all costs required to procure any and all such releases shall be exclusively borne by Sellers and, to the extent that Buyers or any of their Affiliates incur legal or other third-party costs to procure any such releases, Sellers shall promptly indemnify and hold harmless Buyers for the same.

8.6     Third-Party Consents . Sellers shall have obtained the consent of each Person set forth on Schedule 8.6 in respect of the matters set forth on Schedule 8.6 , in form and substance agreed to by the Parties prior to the date hereof.

8.7     Supply Agreement . The Supply Agreement shall have been executed and delivered by Auto Glass.

8.8     Transition Services Agreement . The Transition Services Agreement shall have been executed and delivered by Auto Glass and PGW Canada.

8.9     Intellectual Property Agreement . The Intellectual Property Agreement shall have been executed and delivered by Auto Glass and PGW Canada.

8.10     ARG Business Distribution . The Company and the LKQ Group Members shall have consummated the ARG Business Distribution in a manner consistent with Section 7.14 .

8.11     Required Information . Sellers shall have delivered or caused to be delivered to Buyers the applicable Required Information.

8.12     Audited Net Operating Income . The Audited Net Operating Income shall be at least 90% of the Unaudited Net Operating Income; provided that this condition precedent shall not apply if within 10 Business Days following receipt of Audited Financial Statements showing an Audited Net Operating Income of less than 90% of the Unaudited Net Operating Income, Buyers shall not have provided a written notice to Sellers of Buyers’ intent to review and discuss this issue with Sellers.


9.    CONDITIONS TO THE OBLIGATION TO CLOSE OF SELLERS.


The obligations of Sellers to consummate the Acquisition and the other Transactions is subject to the satisfaction, at or prior to the Closing, of all of the following conditions, compliance with which, or the occurrence of which, may be waived prior to the Closing by Sellers:


[NEWYORK 3251393_44]



9.1     Representations, Warranties and Covenants .

9.1.1    Each of the representations and warranties of Buyers in Section 6 , without taking into account any materiality or similar phrases contained therein, shall be true and correct, in each case, as of the Closing Date, as if made on the Closing Date (other than those representations and warranties which address matters only as of a particular date, which shall be true and correct as of such date), in each case, except for such failures to be true and correct as would not or would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on Buyers.

9.1.2    Buyers shall have performed and satisfied, in all material respects, all covenants and agreements required by this Agreement to be performed or satisfied by Buyers at or prior to the Closing; provided , however , that, with respect to any such agreements and covenants that are qualified by materiality, Buyers shall have performed or complied with such agreements and covenants, as so qualified, in all respects.

9.1.3    Buyers shall have furnished to Sellers a certificate, dated as of the Closing Date, to the effect that the conditions specified in Sections 9.1.1 and 9.1.2 have been satisfied.


9.2     Governmental Authorization; Litigation . All necessary filings pursuant to the HSR Act shall have been made and all applicable waiting periods thereunder shall have expired or been terminated. There shall be in effect no Legal Requirement or Governmental Order (whether temporary, preliminary or permanent) that has the effect of prohibiting the consummation of the Transactions, and no Action instituted by any Governmental Authority seeking to prohibit the consummation of the Transactions or that would cause any of the Transactions to be rescinded following the Closing shall be pending.

9.3     Escrow Agreement . The Escrow Agreement shall have been executed and delivered by Buyers.

9.4     Supply Agreement . The Supply Agreement shall have been executed and delivered by PGW and Vitro.

9.5     Transition Services Agreement . The Transition Services Agreement shall have been executed and delivered by PGW.

9.6     Intellectual Property Agreement . The Intellectual Property Agreement shall have been executed and delivered by PGW.


10.    SURVIVAL; INDEMNIFICATION; TAX MATTERS.

10.1     Nonsurvival of Representations and Warranties . None of the representations and warranties, covenants or other agreements, in each case contained in this Agreement or in any instrument or certificate delivered by any Party pursuant to or in connection with this Agreement, will survive the Closing, and none of the Parties nor any Nonparty Affiliate shall have any Liability after the Closing for any inaccuracy therein or breach thereof other than with respect to (a) covenants and agreements to be performed following the Closing that will survive


[NEWYORK 3251393_44]



in accordance with the terms thereof, (b) covenants and agreements to be performed prior to the Closing that will survive for 12 months from the Closing Date, and (c) Section 4.1.2 and the provisions of Section 13 , which shall survive the Closing. For the avoidance of doubt, but subject to Section 14.14 , nothing in this Agreement shall limit any Party’s right to bring an Action in a court of law or equity for fraud or intentional misrepresentation based solely on the representations and warranties set forth in this Agreement or in certificates required to be delivered hereunder in connection with the Closing that is otherwise available to such Party and to recover Losses from the Party who committed such fraud or intentional misrepresentation awarded by a court with respect thereto. Such rights for fraud or intentional misrepresentation shall survive indefinitely or until the latest time permitted by applicable Legal Requirements.

10.2     Special Indemnification by Sellers . From and after the Closing, Sellers shall indemnify, defend and hold harmless Buyers and their Affiliates (including, after the Closing, the Company, the Company Subsidiaries and the Company Joint Ventures) and their respective Representatives, successors and permitted assigns (collectively, the “ Buyer Indemnitees ”) from and against, and shall pay and reimburse each of the Buyer Indemnitees for, any and all Losses incurred or sustained by, or imposed upon, the Buyer Indemnitees (whether in connection with a Direct Claim or a Third-Party Claim) to the extent arising out of:

10.2.1    any breach of any covenant, agreement or obligation to be performed by any Seller or PGW Canada pursuant to this Agreement (a) prior to the Closing Date or (b) following the Closing Date;

10.2.2    withdrawal liability arising out of or relating to any “multiemployer plan” as defined in Section 4001(a)(3) of ERISA contributed to by any Seller, the Company or their respective Subsidiaries and predecessors or in respect of which any Controlled Group Member had any contribution obligation or Liability, but not including any withdrawal liability arising out of a multiemployer plan to which (a) none of the Company, the Company Subsidiaries nor any Controlled Group Member is obligated to contribute prior to the Closing and (b) the Company or a Company Subsidiary or any Controlled Group Member thereof (determined after the Closing Date) contributes after the Closing Date;

10.2.3    any Liability retained or assumed by Sellers and their Affiliates pursuant to Section 7.3.3 ;

10.2.4    any Seller Plan;

10.2.5    the matter identified on Schedule 10.2.5 ;

10.2.6    the ARG Business Distribution and the business and operation of the Distributed ARG Business prior to, on or after the Closing Date (except as otherwise expressly provided for in Section 7.14.8.7 ), including any Intellectual Property distributed in connection with the ARG Business Distribution that is (x) used in connection with the Business or (y) intended for use by the Company or a Company Subsidiary in connection with the Business as of the date of this Agreement or as of the


[NEWYORK 3251393_44]



Closing Date as evidenced by appropriate documentation or certification by an appropriate officer or employee of the Company or the Company Subsidiary;

10.2.7    any inaccuracy or breach of the representation and warranty of the Company in Section 4.1.2 ; and

10.2.8    any Tax attributable to a Pre-Closing Tax Period (other than Taxes properly accrued and reflected in the calculation of the purchase price in accordance with Section 3 or otherwise paid to Buyers pursuant to Section 10.8.2 ), including any Tax allocable to Sellers in accordance with Section 10.8 but not including Taxes to be borne by Buyers in accordance with Section 10.8.1 .


10.3     Special Indemnification by Buyers . From and after the Closing, Buyers shall indemnify, defend and hold harmless Sellers and their Affiliates and their respective Representatives, successors and permitted assigns (collectively, the “ Seller Indemnitees ”) from and against, and shall pay and reimburse each of the Seller Indemnitees for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees (whether in connection with a Direct Claim or a Third-Party Claim) arising out of any breach of any covenant, agreement or obligation to be performed by any Buyer, the Company or any of the Company Subsidiaries under this Agreement (a) prior to the Closing and (b) following the Closing.


10.4     Limitations on Liability .


10.4.1    Sellers shall not be required to indemnify, defend, hold harmless, pay or reimburse the Buyer Indemnitees under Section 10.2.1(a) unless and until the aggregate amount of all Losses in respect of indemnification under Section 10.2.1(a) exceeds $200,000 (the “ Deductible ”) and once the Deductible has been exceeded, Sellers shall only be required to indemnify, defend, hold harmless, pay and reimburse for Losses in excess of the Deductible.

10.4.2    Buyers shall not be required to indemnify, defend, hold harmless, pay or reimburse the Seller Indemnitees under Section 10.3(a) unless and until the aggregate amount of all Losses in respect of indemnification under Section 10.3(a) exceeds the Deductible and once the Deductible has been exceeded, Buyer shall only be required to indemnify, defend, hold harmless, pay and reimburse for Losses in excess of the Deductible.

10.4.3    In no event shall the aggregate amount of Losses to be paid to (a) the Buyer Indemnitees pursuant to Section 10.2.1(a) exceed $5,000,000 (the “ Cap ”) and (b) the Seller Indemnitees pursuant to Section 10.3(a) exceed the Cap.

10.4.4    Sellers shall not be required to indemnify, defend, hold harmless, pay or reimburse the Buyer Indemnitees in respect of any Losses arising from any Tax related to a Pre-Closing Period after the applicable statute of limitations with respect to such Tax.

10.4.5    under Section 10.2.8 (other than for Taxes Paid on Initial Returns) unless and until the aggregate amount of the Losses in respect of indemnification under


[NEWYORK 3251393_44]



Section 10.2.8 (other than Taxes Paid on Initial Returns) exceeds $50,000 (the “ Tax Deductible ”) and once the Tax Deductible has been exceeded Sellers shall only be required to indemnify, defend, hold harmless, pay and reimburse for Losses in excess of the Tax Deductible.

10.4.6    Other than for Taxes Paid on Initial Returns, Sellers shall only be liable for 50% of the Losses of the Buyer Indemnitees under Section 10.2.8 (in excess of the Tax Deductible) and in no event shall the aggregate amount of Losses to be paid to the Buyer Indemnitees pursuant to Section 10.2.8 exceed $3,000,000 (the “ Tax Cap ”).

10.4.7    Any Indemnified Party that becomes aware of any Losses for which it seeks indemnification under this Section 10 shall be required to use commercially reasonable efforts to mitigate such Losses.

10.4.8    With respect to each indemnification obligation contained in this Agreement:

10.4.8.1    all Losses shall be net of any amounts that have been recovered by the Buyer Indemnitees or Seller Indemnitees pursuant to any indemnification by, or indemnification agreement with, any third party or any insurance policy, including representation and warranty insurance, or other cash receipts or sources of reimbursement or any Tax benefit actually realized by the Buyer Indemnitees or Seller Indemnitees in respect of such Losses;

10.4.8.2    No Party shall have any Liability under any provision of this Agreement for any punitive, incidental, consequential, special or indirect damages, including business interruption, loss of future revenue whether or not expected, profits or income or loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, except to the extent that such damages are specifically included in Third-Party Claims and result in Losses; and

10.4.8.3    Any claim for indemnification made under this Section 10 by any Party shall be bona fide and made in good faith.

10.4.9    The Parties acknowledge and agree that various provisions of the Transaction Documents relate to the continued relationship of Buyers and their Affiliates with Sellers and their Affiliates following the Closing, including the supply of products under the Supply Agreement, the license of certain Intellectual Property under the Intellectual Property Agreement and the provision of deliverables and services under the Transition Services Agreement, and the rights and obligations of the Parties relating to the Distributed ARG Business after the Closing.  For the avoidance of doubt, the indemnity provided under Section 10.2.6 shall not amend, modify, replace or supersede such terms and conditions (including such terms and conditions governing the rights and obligations of the Parties with respect to the Distributed ARG Business) of the Transaction Documents.


10.5     Indemnification Procedures .


[NEWYORK 3251393_44]




10.5.1    All claims for indemnification pursuant to Section 10.2 shall be made in accordance with the procedures set forth in this Section 10.5 . The Party entitled to assert a Claim for indemnification pursuant to Section 10.2 (an “ Indemnified Party ”) shall give the other Party (the “ Indemnifying Party ”) written notice of any such Claim (a “ Claim Notice ”), which notice shall include a description in reasonable detail of (i) the basis for, and nature of, such Claim, including the facts constituting the basis for such Claim, and (ii) the estimated amount of the Losses that have been or may be sustained by such Indemnified Party in connection with such Claim; provided , however , that any such Claim Notice need only specify such information to the knowledge of the Indemnified Party as of the date of such Claim Notice and shall not limit or prejudice any of the rights or remedies of any Indemnified Party on the basis of any limitations on the information included in such Claim Notice, including any such limitations made in good faith to preserve the attorney-client privilege, work product doctrine or any other privilege. Any Claim Notice shall be given by the Indemnified Party to the Indemnifying Party (a) in the case of a Claim in connection with any Action made or brought by any Person (other than an Indemnified Party in connection with this Agreement) against such Indemnified Party (a “ Third-Party Claim ”), reasonably promptly following receipt of notice of the assertion or commencement of such Action, and (b) in the case of a Claim other than a Third-Party Claim (a “ Direct Claim ”), reasonably promptly after the Indemnified Party determines that it intends to seek indemnification for such Direct Claim; provided , however , that (1) no failure to give such prompt written notice shall relieve the Indemnifying Party of any of its indemnification obligations hereunder except to the extent that the Indemnifying Party is materially and adversely prejudiced by such failure, and (2) the right to indemnification of an Indemnified Party in connection with any Third-Party Claim (x) shall not accrue until such Indemnified Party receives notice of the assertion or commencement of an Action in connection with such Third-Party Claim and (y) shall not be deemed time-barred or otherwise unavailable until no less than 90 days after such Indemnified Party’s receipt of any such notice (and any statute of limitations or common law principal that limits or purports to limit the availability of such right to indemnification shall be deemed tolled, to the extent necessary, until such 90-day period has ended).

10.5.2    With respect to a Direct Claim, in case the Indemnifying Party shall object to the indemnification of an Indemnified Party in respect of any Direct Claim, the Indemnifying Party shall, within 30 days after receipt by the Indemnifying Party of such Direct Claim, deliver to the Indemnified Party a written notice to such effect, and the Indemnifying Party and the Indemnified Party shall, within the 30-day period beginning on the date of receipt by the Indemnified Party of such written objection, attempt in good faith to agree upon the rights of the respective parties with respect to such Direct Claim to which the Indemnifying Party shall have so objected, and any agreement reached regarding their respective rights with respect to any of such claims shall be set forth in a written memorandum signed by the Indemnified Party and the Indemnifying Party. Should the Indemnified Party and the Indemnifying Party be unable to agree as to any particular item or items or amount or amounts, then the Indemnified Party and the Indemnifying Party may submit such dispute to a court of competent jurisdiction in accordance with Section 11 .





[NEWYORK 3251393_44]





10.5.3    With respect to any Third-Party Claim (other than a Third-Party Claim related to Pre-Closing Taxes), the Indemnifying Party shall have the right, by giving written notice to the Indemnified Party within 30 days after delivery of the Claim Notice with respect to such Third-Party Claim, to assume control of the defense of such Third-Party Claim at the Indemnifying Party’s expense with counsel of its choosing that is reasonably satisfactory to the Indemnified Party, and the Indemnified Party shall cooperate in good faith in such defense, and make available to the Indemnifying Party all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party; provided , however , that the Indemnifying Party shall not have the right to control the defense of any Third-Party Claim that (i) seeks any material injunctive or other material equitable relief against the Indemnifying Party; (ii) seeks monetary damages, the amount of which would reasonably be expected to exceed any limitation on the amount of Losses for which the Indemnifying Party is responsible hereunder or; (iii) if the Indemnifying Party is any Seller, has been brought by or on behalf of any customer or supplier of any Buyer or any of its Affiliates (which Affiliates shall include, after the Closing, the Company or any Company Subsidiary) that is not a customer or supplier of any LKQ Group Member. The Indemnified Party or the Indemnifying Party, as the case may be, that is not controlling such defense shall have the right, at its own cost and expense, to participate in the defense of any Third-Party Claim with counsel selected by it. If the Indemnifying Party elects not to control the defense of such Third-Party Claim (including by failing to promptly notify the Indemnified Party in writing of its election to control such defense in accordance with this Section 10.5.3 or fails to diligently prosecute the defense of such Third-Party Claim), the Indemnified Party may control the defense of such Third-Party Claim with counsel of its choosing, and the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel (including advancement thereof) to the Indemnified Party in each jurisdiction in which the Indemnified Party reasonably determines counsel is required. Each Buyer and Seller shall reasonably cooperate with each other in connection with the defense of any Third-Party Claim, including by retaining and providing to the Party controlling such defense records and information that are reasonably relevant to such Third-Party Claim and making available employees on a mutually convenient basis for providing additional information and explanation of any material provided hereunder. The Indemnified Party or the Indemnifying Party, as the case may be, that is controlling such defense shall keep the other Party reasonably advised of the status of such Action and the defense thereof and shall consider in good faith any recommendations made by the other Party with respect thereto.

10.5.4    Notwithstanding anything in this Agreement to the contrary, (i) the Indemnifying Party shall not agree to any settlement of any Third-Party Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld, conditioned or delayed), unless such settlement would (a) include a complete and unconditional release of each Indemnified Party from all Liabilities or obligations with respect thereto, (b) not impose any Liability (including any equitable remedies) on the Indemnified Party and (c) not involve a finding or admission of any wrongdoing on the part of the Indemnified Party, and (ii) an Indemnified Party shall not agree to any




[NEWYORK 3251393_44]




settlement of a Third-Party Claim without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld, conditioned or delayed.

10.5.5    Within ten Business Days of the determination of the amount of any (i) Uncontested Claims; (ii) claims for Losses covered by a memorandum of agreement of the nature described in Section 10.5.2 ; (iii) claims for Losses, the validity and amount of which have been the subject of a final and non-appealable judicial determination (where such Indemnified Party has complied with the procedures set forth in this Section 10.5 ); or (iv) claims for Losses, the validity and amount of which shall have been the subject of a settlement or judicial determination as described in Section 10.5.4 , subject to Section 10.4 , the Indemnifying Party shall pay such determined amount to the Indemnified Party.

10.6     Tax Treatment of Indemnification Payments . Any indemnification payment made under Section 10.2 will be treated as an adjustment to the purchase price (as determined for Tax purposes).


10.7     Exclusive Remedy . From and after the Closing, the Parties acknowledge and agree that (i) this Section 10 shall be the sole and exclusive remedy of the Buyer Indemnitees and the Seller Indemnitees against an Indemnifying Party in connection with this Agreement and the Transactions; (ii) neither Buyers nor Sellers shall be liable or responsible in any manner whatsoever (whether for indemnification or otherwise) to any Indemnified Party for a breach of this Agreement or in connection with the Transactions, except pursuant to the indemnification provisions set forth in this Section 10; and (iii) each Party hereby waives, to the fullest extent permitted under applicable Legal Requirements, any and all rights, claims or causes of Action (A) for any breach of any representation, warranty, covenant, agreement or obligations set forth herein or (B) otherwise relating to or in connection with this Agreement and the Transactions, in each case, that it may have against another Party and any of such Party’s Affiliates or Representatives arising under or based upon any Legal Requirement, except pursuant to the indemnification provisions set forth in this Section 10 ; provided ; that nothing in this Section 10.7 shall limit the rights or remedies of, or constitute a waiver of any rights or remedies by, any Party pursuant to (or shall otherwise operate to interfere with the operation of) Sections 3.4 , or 14.11 . For the avoidance of doubt, and notwithstanding anything to the contrary herein, to the extent the Closing occurs, Sellers shall not have any indemnification or other Liability with respect to representations and warranties of the Company, the Company Subsidiaries or Sellers, including any representations and warranties made through any closing certificate, other than as set forth in Section 10.2.7 or otherwise in the case of fraud or willful misrepresentation.


10.8     Tax Matters .


10.8.1    All transfer, documentary, sales, use, stamp, registration and other similar Taxes (but specifically excluding any income Taxes), if any, arising in connection with the Transactions will be borne 50% by Buyers and 50% by Sellers. Each of the Parties will prepare and file, and will fully cooperate with each other Party with respect to the preparation and filing of, any Tax Returns and other filings relating to any such Taxes or charges as may be required.



[NEWYORK 3251393_44]




10.8.2    Subject to Section 10.8.1 , Buyers shall prepare or cause to be prepared all income Tax Returns for the Company and the Company Subsidiaries that relate to any Pre-Closing Tax Periods and that are due after the Closing Date. Such returns shall be prepared at least 45 days before the due date thereof (taking into account extensions), unless the Closing Date is within 45 days of the due date thereof, in which case such Tax Returns shall be prepared as soon as practicable following the Closing Date.  Such Tax Returns shall be prepared in a manner consistent with past practice.  The costs of any third party review or preparation of all such Tax Returns which include only Tax periods ending on or before the Closing Date, shall be borne by Sellers. The cost of any third party review or preparation of such Tax Returns, in respect of any Straddle Period shall be allocated between Sellers and Buyers in accordance with the day count method contained in Section ý10.8.4(y) . Sellers shall be permitted to review and comment on any such Tax Returns prior to the filing thereof, and Buyers shall incorporate any reasonable comments requested by Sellers if such comments are received no later than ten days prior to filing such returns.  Buyers, the Company or the applicable Company Subsidiary shall timely file (or cause to be timely filed) any such Tax Returns.  Following the Closing, none of Buyers, the Company or any Company Subsidiary shall amend any Tax Return of the Company or the Company Subsidiaries to the extent that such Tax Return relates to any Pre-Closing Tax Period without the prior written consent of Sellers, which will not be unreasonably withheld, conditioned or delayed. Sellers shall reimburse or cause to be reimbursed to Buyers their allocable share of any income Taxes indicated as due and payable on such income Tax Returns in accordance with Section 10.8.3 and Section 10.8.4 no later than ten days following notice by Buyers of Buyers’ payment of such income Taxes (the “ Taxes Paid on Initial Returns ”).

10.8.3    Any deductions or other Tax benefits related to the Transactions that occur on or prior to the Closing Date will be allocated to Pre-Closing Tax Periods (except as otherwise required by applicable Legal Requirements).

10.8.4    Other than as set forth in this Section 10.8.4 , any income Tax of the Company or a Company Subsidiary arising during or attributable to a Pre-Closing Tax Period (whether or not imposed before the Closing Date) shall be allocated to Sellers and Sellers shall reimburse Buyers no later than ten days following notice to Buyers of Buyers’ payment of such income Taxes. The allocation of any Tax, Tax refund, or Tax benefit attributable to a Straddle Period shall be determined (x) in the case of any Taxes based on or measured by income, receipts, proceeds, activities, gain or similar items, by closing the books of the Company and the Company Subsidiaries as of the close of business on the Closing Date; provided , however , that any item determined on an annual or periodic basis (such as deductions for depreciation or real estate Taxes) shall be apportioned on a daily basis, and (y) in the case of all other Taxes, by multiplying such Taxes by a fraction, the numerator of which is the number of days from the beginning of such taxable period through the close of business on the Closing Date and the denominator of which is the total number of days in such taxable period.


10.8.5    Buyers shall promptly (and in no event later than ten Business Days after such receipt) notify Sellers upon receipt by Buyers or any Affiliate of Buyers (including the Company and the Company Subsidiaries) of written notice of any Tax Matter that could result in Tax imposed on Sellers (or its beneficial owners) with respect to the Company or the Company Subsidiaries. Sellers shall promptly (and in no event later than ten Business Days after such receipt) notify Buyers upon receipt by any Seller or any Affiliate of Sellers of written notice of any Tax


[NEWYORK 3251393_44]





Matter that could result in Tax imposed on any Buyer (or its beneficial owners), the Company or any Company Subsidiary. In the case of any Tax Matter that could result in a material Tax imposed on any Seller (or its beneficial owners) with respect to the Company or the Company Subsidiaries, Sellers shall be entitled (at their own expense): (i) to review and consent, which consent shall not be unreasonably withheld or delayed, to any correspondence or filings to be submitted to any Tax Authority or Governmental Authority with respect to such Tax Matter (or the relevant portion or aspect thereof) and (ii) to attend any formally scheduled meetings with any Tax Authority or Governmental Authority or hearings or Actions before any judicial authority, in each case with respect to such Tax Matter (or the relevant portion or aspect thereof). Furthermore, Buyers shall not (a) waive or extend the applicable statute of limitations with respect to such Tax Matter or (b) accept or enter into any settlement of such Tax Matter (or the relevant portion or aspect thereof), in each case without the consent of Sellers (which shall not be unreasonably withheld or delayed).

10.8.6    Within 120 days after the Closing, Buyers shall prepare and deliver to Sellers for their review (i) a schedule allocating the purchase price (as determined for U.S. federal income tax purposes) among the assets of the Company and the Canadian Assets for purposes of Section 1060 of the Code (and for purposes of determining the value of the equity interests of the Company Subsidiaries that are purchased by Buyers, Buyers shall consider as a floor the reasonable valuation information provided by Sellers in respect of those equity interests and (ii) schedules allocating the purchase price (as determined under applicable Legal Requirements) among the assets of the Company Subsidiaries to the extent required under the Legal Requirements in each jurisdiction in which the Company or any Company Subsidiary is located (each such schedule in (i) or (ii), an “ Allocation Schedule ,”) (together with worksheets and backup information explaining such allocation in reasonable detail). If Sellers disagree with respect to any material item in the Allocation Schedule, Sellers shall notify Buyers of such disagreement in writing within 45 days of receipt of the applicable Allocation Schedule. The Parties will negotiate in good faith to resolve the dispute. If they cannot resolve the dispute within 45 days following receipt by Buyers of Sellers’ disagreement, the Parties will engage an accounting firm of nationally recognized standing in the United States experienced in such matters or another mutually agreed-upon independent appraiser to resolve any such dispute, whose determination shall be binding. Each agreed-upon Allocation Schedule shall become an “ Allocation ” for purposes of this Agreement with respect to the jurisdiction for which such Allocation Schedule was prepared. The Parties shall file all relevant Tax Returns in a manner consistent with the relevant Allocation and shall not take any position inconsistent with such Allocation, unless otherwise required by applicable Legal Requirements.


10.8.7    Buyers and Sellers will cooperate fully (each, at its own expense), as and to the extent reasonably requested by the other Party, in connection with the filing and preparation of Tax Returns related to the business operations of the Company, the Company Subsidiaries and the Canadian Assets (including the partnership Tax Returns of



[NEWYORK 3251393_44]





Holdings). Such cooperation will include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such Tax Return or Tax Matter (including, Sellers’ provision to Buyers of transfer pricing reports and back-up materials in respect of the operations of the Company and the Company Subsidiaries) and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyers and Sellers agree that the Company and the Company Subsidiaries will retain all books and records with respect to the business operations of the Company and the Company Subsidiaries for Pre-Closing Tax Periods until the expiration of the statute or period of limitations of the respective taxable periods.

10.8.8    In the event that Sellers’ U.S. employees who currently prepare non-foreign Tax Returns are retained by Sellers, such U.S. employees shall be made available to Buyers in order for Buyers to satisfy their Tax reporting obligations. In the event that Sellers’ U.S. employees who currently prepare non-foreign Tax Returns are retained by Buyers, such U.S. employees shall be made available to Sellers in order for Sellers to satisfy its Tax reporting obligations (including the filing of partnership Tax Returns of Holdings). In the event that Sellers’ U.S. employees who currently prepare non-foreign Tax Returns are neither retained by Sellers or Buyers, Buyers shall hire other employees or outside Tax personnel to assist in providing the necessary information to complete the Tax reporting obligations herein and Sellers shall bear the reasonable apportioned costs of such employees or personnel in respect of their time to satisfy the Tax reporting obligations to Sellers hereunder.


11.    CONSENT TO JURISDICTION; JURY TRIAL WAIVER.

11.1     Consent to Jurisdiction . Each Party, by its execution hereof, hereby irrevocably and unconditionally: (i) submits for itself and its property, to the exclusive jurisdiction of the Chancery Courts of the State of Delaware or, if but only if, such Court declines jurisdiction, the Superior Courts of the State of Delaware or the United States District Court for the District of Delaware (the “ Delaware Courts ”), for the purpose of any Action arising out of or in connection with this Agreement or the negotiation, execution or performance of this Agreement or any of the Transactions; (ii) agrees that all claims in respect of any such Action be heard and determined in any Delaware Court; (iii) waives and agrees not to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of any Delaware Court, that its property is exempt or immune from attachment or execution, that any such Action brought in any Delaware Court is improperly venued, or that this Agreement or any of the Transactions may not be enforced in or by such Delaware Court; (iv) agrees not to commence any such Action other than before any Delaware Court nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such Action to any court other than a Delaware Court whether on the grounds of inconvenient forum or otherwise, or to seek to stay or dismiss any such Action in favor of any Action in any other forum; (v) agrees that a final and non-appealable judgment in any such Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Legal Requirements; and (vi) consents to service of process in any such Action in any manner permitted by applicable Legal Requirements, or by delivery to it by an overnight courier service recognized in the United States and guaranteeing overnight



[NEWYORK 3251393_44]



delivery at its address specified pursuant to Section 14.5 , and agrees that such service of process in any such Action shall be valid and sufficient service thereof. Notwithstanding the foregoing, a Party may commence an Action in any jurisdiction to enforce an order or judgment of any Delaware Court. For the avoidance of doubt, this Section 11.1 shall not limit the jurisdiction of the Arbitrator as set forth in Section 3.4, and the Delaware Courts would have exclusive jurisdiction to enforce the jurisdiction and judgments of the Arbitrator.


11.2     WAIVER OF JURY TRIAL . EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES AND COVENANTS, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS, THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ACTION DESCRIBED IN SECTION 11.1 . EACH PARTY (a) CERTIFIES AND ACKNOWLEDGES THAT NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SEEK TO ENFORCE THE FOREGOING WAIVER, (b) CERTIFIES AND ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES THAT THIS SECTION 11.2 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH SUCH OTHER PARTIES ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT, (c) UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER AND (d) MAKES THIS WAIVER VOLUNTARILY. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 11.2 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.


11.3     Attorneys’ Fees and Expenses . In the event any Party brings an Action to enforce or determine any rights under this Agreement or the Transactions, the Parties agree that the court referred to in Section 11.1 shall, only upon a clear demonstration that one Party is the non-prevailing party in such Action, order the non-prevailing Party to pay the reasonable out-of-pocket attorneys’ fees and expenses incurred by the prevailing Party and promptly after the entry of a final and nonappealable order of such court to such effect, the non-prevailing Party shall pay to the prevailing Party all such costs and expenses; provided that , in any such Action, if a Party seeking monetary recovery is awarded some, but less than the full amount, of the recovery sought, the Party receiving such award shall be deemed the prevailing Party if such award represents 50% or more of the amount originally sought, and the other Party shall be deemed the prevailing Party if the amount awarded represents less than 50% of the amount originally sought; and provided , further , that in either such case of partial recovery, the amount of the prevailing Party’s attorneys’ fees and expenses reimbursed pursuant to this Section 11.3 shall be limited to a percentage of such fees and expenses equal to (i) the percentage recovered of the amount originally sought, if the prevailing Party was the recipient of the award, or (ii) the percentage of the amount originally sought that was not recovered, if the prevailing Party was the other Party.


12.    TERMINATION.








[NEWYORK 3251393_44]


    

12.1     Termination . This Agreement may be terminated by the Parties only as provided below:


12.1.1    Buyers and Sellers may terminate this Agreement by mutual written consent at any time prior to the Closing.


12.1.2    Buyers may terminate this Agreement by delivering written notice to Sellers at any time prior to the Closing in the event any of the representations or warranties of the Company or Sellers set forth in Sections 4 and 5 shall not be true and correct, or if any Seller, the Company or any Company Subsidiary has failed to perform any covenant or agreement on the part of such Seller, the Company or such Company Subsidiary set forth in this Agreement, in each case, such that a condition to Closing set forth in Section 8 would not be satisfied and the breach or breaches causing such representations or warranties not to be true and correct, or the failures to perform any such covenant or agreement, as applicable, are not cured within 20 Business Days after written notice thereof is delivered to Sellers; provided , that if the only breach by any Seller, the Company or any Company Subsidiary is a failure to consummate the Closing within five Business Days following the date upon which the Closing is otherwise contemplated to occur pursuant to Section 2.5 , Buyers may terminate this Agreement immediately upon written notice to Sellers; provided , further , that the right to terminate this Agreement under this Section 12.1.2 shall not be available to Buyers if Buyers are then in breach of this Agreement so as to cause a condition to Closing set forth in Section 9 not to be satisfied.


12.1.3    Sellers may terminate this Agreement by delivering written notice to Buyers at any time prior to the Closing in the event any of the representations or warranties of Buyers set forth in Section 6 shall not be true and correct, or if any Buyer has failed to perform any covenant or agreement on the part of such Buyer set forth in this Agreement, in each case, such that the conditions to Closing set forth in Section 9 would not be satisfied and the breach or breaches causing such representations or warranties not to be true and correct, or the failures to perform any such covenant or agreement, as applicable, are not cured within 20 Business Days after written notice thereof is delivered to Buyers; provided that if the only breach by any Buyer is a failure to consummate the Closing within five Business Days following the date upon which the Closing is otherwise contemplated to occur pursuant to Section 2.5 , Sellers may terminate this Agreement immediately upon written notice to Buyers; provided , further , that the right to terminate this Agreement under this Section 12.1.3 shall not be available to Sellers if Sellers are then in breach of this Agreement so as to cause a condition to Closing set forth in Section 8 not to be satisfied.


12.1.4    Buyers, on the one hand, or Sellers, on the other hand, may terminate this Agreement by providing written notice to the other at any time on or after June 18, 2017 if the Transactions have not been consummated by such date and the Party seeking to terminate this Agreement pursuant to this Section 12.1.4 has not ( provided that, if such Party is any Seller, none of the Company, any Company Subsidiary or any Seller has) breached any of its representations, warranties, covenants or agreements under this Agreement in any manner that has proximately caused the failure to consummate the


[NEWYORK 3251393_44]



Transactions on or before such date; provided that if the only reason the Closing has not occurred on or prior to such date is that the conditions set forth in the first sentence of Sections 8.2 and 9.2 has not been satisfied, then such date shall be automatically extended pending satisfaction of such condition to the date that is the first anniversary hereof.

12.1.5    Buyers, on the one hand, or Sellers, on the other hand, may terminate this Agreement by providing written notice to the other prior to the Closing if any Governmental Authority issues a Governmental Order permanently enjoining, restraining or otherwise prohibiting any of the Transactions and such Governmental Order has become final and nonappealable; provided , however , that the right to terminate this Agreement pursuant to this Section 12.1.5 shall not be available to any Party that (i) initiated such Action or that has not taken reasonable actions necessary to oppose, contest and resist, and to have lifted, rescinded or vacated, such Governmental Order before it became final and nonappealable or (ii) is then in breach of this Agreement so as to cause a condition to Closing set forth in Sections 8 or 9 , as applicable, not to be satisfied.

12.1.6    Buyers may terminate this Agreement if the Audited Net Operating Income is less than 90% of the Unaudited Net Operating Income; provided that this termination right shall no longer be available if within 10 Business Days following receipt of Audited Financial Statements showing an Audited Net Operating Income of less than 90% of the Unaudited Net Operating Income, Buyers shall not have provided a written notice to Sellers of Buyers’ intent to review and discuss this issue with Sellers.

12.2     Effect of Termination . In the event of the termination of this Agreement pursuant to Section 12.1 , all obligations of the Parties hereunder will terminate without any further Liability of any Party to any other Party, except that (i) the provisions of this Section 12.2 , and Section 13 and Section 14 (other than the provisions of Section 14.11 ) shall survive termination of this Agreement and (ii) nothing herein will relieve any Party from any Liability for intentional fraud based on the express representations and warranties in this Agreement or any willful and material breach of the provisions of this Agreement prior to such termination (which, for the avoidance of doubt, will be deemed to include any failure by a Party to consummate the Transactions if it is obliged to do so hereunder). In addition, no termination of this Agreement will affect the obligations contained in the Confidentiality Agreement, all of which obligations will survive termination of this Agreement in accordance with their terms.


13.    GUARANTIES OF LKQ AND VITRO

13.1     Guaranty of LKQ

13.1.1    Upon the terms and subject to the conditions set forth in Section 13.1 through Section 13.6 , LKQ irrevocably, absolutely and unconditionally guarantees, as primary obligor and not merely as surety, to and for the benefit of Buyers and any Buyer Indemnitee or any of their permitted successors or assignees, (i) the full, prompt and punctual payment when due by Sellers of all of their payment obligations under this Agreement (including Sellers’ payment obligations under Sections 3.5 , 3.6 , 10.2 and



[NEWYORK 3251393_44]



10.8 ), or any other Transaction Document, whether such payment obligations currently exist or are created, incurred or arise from time to time hereafter in accordance with this Agreement or any other Transaction Document, (ii) the full and faithful performance by Sellers and their Affiliates of each and every of their respective covenants, agreements, Liabilities, and obligations under this Agreement and the other Transaction Documents, in accordance with the terms hereof and thereof, whether such covenants, agreements, Liabilities and obligations currently exist or are created, incurred or arise from time to time hereafter in accordance with this Agreement or any other Transaction Documents, and (iii) the full and faithful performance by the Company and the Company Subsidiaries of each and every of their respective covenants, agreements, Liabilities and obligations that arise under this Agreement and the Transaction Documents from the date of this Agreement through the Closing Date (collectively, the “ LKQ Guaranty ”). The Liabilities and obligations guaranteed by the LKQ Guaranty are collectively referred to herein as the “ LKQ Guaranteed Obligations .” The LKQ Guaranty constitutes a guaranty of payment and performance and not of collection. Buyers are entitled to specifically enforce the LKQ Guaranteed Obligations pursuant to Section 14.11 .


13.1.2    A demand for payment or an action to enforce the LKQ Guaranty may be made, brought or prosecuted, as applicable, against LKQ only if an LKQ Guaranteed Obligation remains unpaid or unperformed for a period of five Business Days after such LKQ Guaranteed Obligation has become due and payable or Enforceable against Sellers. Upon the terms and subject to the conditions set forth in Sections 13.1 through Section 13.6 , LKQ hereby agrees to pay or perform, or cause to be paid or performed, such LKQ Guaranteed Obligations within five Business Days after Buyers have made a written demand for payment against LKQ with respect to such LKQ Guaranteed Obligation. All payments made by LKQ pursuant to the LKQ Guaranty shall be made without set off or counterclaim and without any deduction or withholding for any reason.

13.2     Absolute and Unconditional LKQ Guaranty .


13.2.1    Subject to the provisions of Sections 13.1.2 , 13.2.2 and 13.4 , the liability of LKQ under the LKQ Guaranty shall, to the extent permitted under the provisions of any Legal Requirement, be absolute, irrevocable and unconditional, and shall not be discharged as a result of or otherwise affected by any circumstance that constitutes a legal or equitable discharge of a guarantor or surety other than indefeasible payment and performance in full of the LKQ Guaranteed Obligations, irrespective of:

13.2.1.1    the illegality of the LKQ Guaranty;

13.2.1.2    the invalidity or unenforceability of any obligation of any Seller or its Affiliates under this Agreement or any other Transaction Document or any other agreement or instrument relating thereto;

13.2.1.3    the validity or genuineness of this Agreement and the other Transaction Documents with respect to Sellers or any of their Affiliates;

13.2.1.4    the enforceability of this Section 13 against Sellers or LKQ;


[NEWYORK 3251393_44]



13.2.1.5    any release or discharge of any payment obligation of Sellers hereunder resulting from any change in the corporate existence, structure or ownership of Sellers, or any insolvency, bankruptcy, reorganization, workout, arrangement, liquidation, dissolution or other similar proceeding affecting any Seller or any of their Affiliates or any of their assets, including any discharge or disallowance of, or bar or stay against collecting, any LKQ Guaranteed Obligation in or as a result of any such proceeding;

13.2.1.6    any amendment or modification of this Agreement or any of the Transaction Documents, in each case in accordance with their terms, or change in the manner, place or terms of payment, or any change or extension of the time of payment of, renewal or alteration of, any LKQ Guaranteed Obligation, any other escrow arrangement or other security therefor, any Liability incurred directly or indirectly in respect thereof, or any waiver of or any consent to any departure from the terms hereof; or

13.2.1.7    any other act or omission relating to the LKQ Guaranty that may or might in any manner or to any extent vary the risk of LKQ or otherwise operate as a discharge of LKQ as a matter of any Legal Requirement or equity.

13.2.2    The Parties acknowledge and agree that the obligations of LKQ under the LKQ Guaranty shall be unconditional, but that the LKQ Guaranteed Obligations shall be subject to all defenses that Sellers (or an applicable Affiliate of any Seller) may have in respect of any underlying covenant, agreement, Liability or obligation under this Agreement or any other Transaction Documents. In the case of any demand for payment or an action to enforce any LKQ Guaranteed Obligation that is subject to a dispute under the terms of this Agreement or any other Transaction Document that provides that such dispute shall be subject to an express dispute resolution (including arbitration) provision (each such dispute, a “ Resolvable Dispute ” and each such provision, a “ Dispute Resolution Procedure ”), then, unless and until the Resolvable Dispute shall have been finally resolved in accordance with the applicable Dispute Resolution Procedure, any Action against LKQ to enforce the LKQ Guaranty with respect to such LKQ Guaranteed Obligation shall be subject to the same terms and conditions contained in the Dispute Resolution Procedure applicable to such Resolvable Dispute, to which LKQ hereby irrevocably submits. Once the Resolvable Dispute has been resolved, the amount, if any, of the LKQ Guaranteed Obligation determined to be due and payable as a result of such Resolvable Dispute shall be immediately due and payable without any set off or counterclaim and without any deduction or withholding for any reason. The rights and benefits of Buyers and Buyer Indemnitees in respect of the LKQ Guaranty in respect of a Resolvable Dispute shall be separate and independent from Buyers’ and Buyer Indemnitees’ rights and defenses in respect of a Resolvable Dispute and any other underlying covenant, agreement, Liability or obligation; provided that payment or performance under the LKQ Guaranty shall extinguish any of Buyers’ and Buyer Indemnitees’ rights and defenses in respect of a Resolvable Dispute and any other underlying covenant, agreement, Liability or obligation to the extent of such payment or performance under the LKQ Guaranty.



[NEWYORK 3251393_44]




13.3     Buyers and Buyer Indemnitees . Neither any Buyer nor any Buyer Indemnitee shall be obligated to file any claim relating to any LKQ Guaranteed Obligation in the event that any Seller or any Seller Indemnitee becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of a Buyer or any Buyer Indemnitee to so file shall not affect LKQ’s obligations hereunder. In the event that any payment to a Buyer or any Buyer Indemnitee in respect of any LKQ Guaranteed Obligation is rescinded or must otherwise be returned for any reason whatsoever, LKQ shall remain liable hereunder with respect to the LKQ Guaranteed Obligation as if such payment had not been made.

13.4     Waiver . Except to the extent expressly set forth herein, LKQ unconditionally and irrevocably waives and agrees not to assert any claim, defense, setoff or counterclaim based on diligence, promptness, presentment, requirements for any demand or notice hereunder, including any of the following: (a) any demand for payment or performance and protest and notice of protest, (b) any notice of acceptance, and (c) any presentment, demand, protest or further notice or other requirements of any kind with respect to any LKQ Guaranteed Obligation becoming immediately due and payable, unless any such right to assert any claim, defense, setoff or counterclaim is available to (and has not previously been exercised by) Sellers under this Agreement or any other Transaction Documents. No obligation of LKQ hereunder shall be discharged other than by complete payment or performance.

13.5     Subrogation . LKQ unconditionally and irrevocably agrees not to enforce or otherwise exercise any right of subrogation or any right of reimbursement or contribution against Sellers, whether arising by contract or operation of any Legal Requirement (including any such right arising under bankruptcy or insolvency Legal Requirements) or otherwise, by reason of any payment or performance made in respect of the LKQ Guaranty unless and until all of the LKQ Guaranteed Obligations (other than contingent obligations or indemnification obligations for which no underlying claim has been asserted) have been indefeasibly paid and performed in full.

13.6     Costs and Expenses . LKQ shall be responsible for, and shall reimburse Buyers, Buyer Indemnitees and their respective affiliates for, all reasonable and documented out-of-pocket costs and expenses incurred by Buyers or Buyer Indemnitees in enforcing any of their rights under the LKQ Guaranty, including reasonable and documented out-of-pocket attorneys’ fees and expenses and costs of enforcement at law or in equity.

13.7     Guaranty of Vitro and Vitro Assets Corp .

13.7.1    Upon the terms and subject to the conditions set forth in this Section 13.7 through Section 13.12 , each of Vitro and Vitro Assets Corp. jointly and severally irrevocably, absolutely and unconditionally guarantees, as primary obligor and not merely as surety, to and for the benefit of Sellers and any Seller Indemnitee or any of their permitted successors or assignees, (i) the full, prompt and punctual payment when due by Buyers of all of their payment obligations under this Agreement (including Buyers’ payment obligations under Sections 3.2 , 3.5 , 3.6 , 10.3 and 10.8 ) or any other Transaction Document, whether such payment obligations currently exist or are created, incurred or arise from time to time hereafter in accordance with this Agreement or any other Transaction Document, (ii) the full and faithful performance by Buyers and their Affiliates of each and every of their respective covenants, agreements, Liabilities and



[NEWYORK 3251393_44]



obligations under this Agreement and the other Transaction Documents, in accordance with the terms hereof and thereof, whether such covenants, agreements, Liabilities and obligations currently exist or are created, incurred or arise from time to time hereafter in accordance with this Agreement or any other Transaction Documents and (iii) the full and faithful performance by the Company and the Company Subsidiaries of each and every of their respective covenants, agreements, Liabilities and obligations that arise after the Closing Date under this Agreement and the Transaction Documents (collectively, the “ Vitro Guaranty ”). The Liabilities and obligations guaranteed by the Vitro Guaranty are collectively referred to herein as the “ Vitro Guaranteed Obligations .” The Vitro Guaranty constitutes a guaranty of payment and performance and not of collection. Sellers are entitled to specifically enforce the Vitro Guaranteed Obligations pursuant to Section 14.11 .

13.7.2    A demand for payment or an action to enforce the Vitro Guaranty may be made, brought or prosecuted, as applicable, against Vitro or Vitro Assets Corp. only if a Vitro Guaranteed Obligation remains unpaid or unperformed for a period of five Business Days after such Vitro Guaranteed Obligation has become due and payable or Enforceable against Buyers. Upon the terms and subject to the conditions set forth in this Section 13.7 through Section 13.12 , each of Vitro and Vitro Assets Corp. jointly and severally hereby agrees to pay or perform, or cause to be paid or performed, such Vitro Guaranteed Obligations, within five Business Days after Sellers have made a written demand for payment against Vitro or Vitro Assets Corp. with respect to such Vitro Guaranteed Obligation. All payments made by Vitro or Vitro Assets Corp. pursuant to the Vitro Guaranty shall be made without set off or counterclaim and without any deduction or withholding for any reason.

13.8     Absolute and Unconditional Vitro Guaranty .

13.8.1    Subject to the provisions of Sections 13.7.2 , 13.8.2 and 13.10 , the liability of Vitro and Vitro Assets Corp. under the Vitro Guaranty shall, to the extent permitted under the provisions of any Legal Requirement, be absolute, irrevocable and unconditional, and shall not be discharged as a result of or otherwise affected by any circumstance that constitutes a legal or equitable discharge of a guarantor or surety other than indefeasible payment and performance in full of the Vitro Guaranteed Obligations, irrespective of:

13.8.1.1    the illegality of the Vitro Guaranty;

13.8.1.2    the invalidity or unenforceability of any obligation of any Buyer or its Affiliates under this Agreement or any other Transaction Document or any other agreement or instrument relating thereto;

13.8.1.3    the validity or genuineness of this Agreement and the other Transaction Documents and the Financing Documents with respect to Buyers or any of their Affiliates;




[NEWYORK 3251393_44]



13.8.1.4    the enforceability of this Section 13 against Buyers, Vitro or Vitro Assets Corp.;

13.8.1.5    any release or discharge of any payment obligation of Buyers hereunder resulting from any change in the corporate existence, structure or ownership of Buyers, or any insolvency, bankruptcy, reorganization, workout, arrangement, liquidation, dissolution or other similar proceeding affecting any Buyer or any of its Affiliates or any of their assets, including any discharge or disallowance of, or bar or stay against collecting, any Vitro Guaranteed Obligation in or as a result of any such proceeding;

13.8.1.6    any amendment or modification of this Agreement or any of the Transaction Documents or the Financing Documents, in each case in accordance with their terms, or change in the manner, place or terms of payment, or any change or extension of the time of payment of, renewal or alteration of, any Vitro Guaranteed Obligation, any other escrow arrangement or other security therefor, any Liability incurred directly or indirectly in respect thereof, or any waiver of or any consent to any departure from the terms hereof; or

13.8.1.7    any other act or omission relating to the Vitro Guaranty that may or might in any manner or to any extent vary the risk of Vitro or Vitro Assets Corp. or otherwise operate as a discharge of Vitro as a matter of any Legal Requirement or equity.

13.8.2    The Parties acknowledge and agree that the obligations of Vitro and Vitro Assets Corp. under the Vitro Guaranty shall be unconditional, but that the Vitro Guaranteed Obligations shall be subject to all defenses that Buyers (or an applicable Affiliate of any Buyer) may have in respect of any underlying covenant, agreement, Liability or obligation under this Agreement or any other Transaction Documents. In the case of any demand for payment or an action to enforce any Vitro Guaranteed Obligation that is subject to a Resolvable Dispute that provides that such dispute shall be subject to a Dispute Resolution Procedure, then, unless and until the Resolvable Dispute shall have been finally resolved in accordance with the applicable Dispute Resolution Procedure, any Action against Vitro or Vitro Assets Corp. to enforce the Vitro Guaranty with respect to such Vitro Guaranteed Obligation shall be subject to the same terms and conditions contained in the Dispute Resolution Procedure applicable to such Resolvable Dispute, to which Vitro and Vitro Assets Corp. hereby irrevocably submits. Once the Resolvable Dispute has been resolved, the amount, if any, of the Vitro Guaranteed Obligation determined to be due and payable as a result of such Resolvable Dispute shall be immediately due and payable without any set off or counterclaim and without any deduction or withholding for any reason. The rights and benefits of Sellers and Seller Indemnitees in respect of the Vitro Guaranty in respect of a Resolvable Dispute shall be separate and independent from Sellers’ and Seller Indemnitees’ rights and defenses in respect of a Resolvable Dispute and any other underlying covenant, agreement, Liability or obligation; provided that payment or performance under the Vitro Guaranty shall extinguish any of Sellers’ and Seller Indemnitees’ rights and defenses in respect of a



[NEWYORK 3251393_44]



Resolvable Dispute and any other underlying covenant, agreement, Liability or obligation to the extent of such payment or performance under the Vitro Guaranty.

13.9     Sellers and Seller Indemnitees . Neither any Seller nor any Seller Indemnitee shall be obligated to file any claim relating to any Vitro Guaranteed Obligation in the event that any Buyer or any Buyer Indemnitee becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of a Seller or any Seller Indemnitee to so file shall not affect Vitro’s or Vitro Asset Corp.’s obligations hereunder. In the event that any payment to a Seller or any Seller Indemnitee in respect of any Vitro Guaranteed Obligation is rescinded or must otherwise be returned for any reason whatsoever, Vitro and Vitro Assets Corp. shall remain liable hereunder with respect to the Vitro Guaranteed Obligation as if such payment had not been made.

13.10     Waiver . Except to the extent expressly set forth herein, Vitro and Vitro Assets Corp. unconditionally and irrevocably waives and agrees not to assert any claim, defense, setoff or counterclaim based on diligence, promptness, presentment, requirements for any demand or notice hereunder, including any of the following: (a) any demand for payment or performance and protest and notice of protest, (b) any notice of acceptance, and (c) any presentment, demand, protest or further notice or other requirements of any kind with respect to any Vitro Guaranteed Obligation becoming immediately due and payable, unless any such right to assert any claim, defense, setoff or counterclaim is available to (and has not previously been exercised by) Buyers under this Agreement or any other Transaction Documents. No obligation of Vitro or Vitro Assets Corp. hereunder shall be discharged other than by complete payment or performance.

13.11     Subrogation . Vitro and Vitro Assets Corp. unconditionally and irrevocably agrees not to enforce or otherwise exercise any right of subrogation or any right of reimbursement or contribution against Buyers, whether arising by contract or operation of any Legal Requirement (including any such right arising under bankruptcy or insolvency Legal Requirements) or otherwise, by reason of any payment or performance made in respect of the Vitro Guaranty unless and until all of the Vitro Guaranteed Obligations (other than contingent obligations or indemnification obligations for which no underlying claim has been asserted) have been indefeasibly paid and performed in full.

13.12     Costs and Expenses . Vitro and Vitro Assets Corp. shall be responsible for, and shall reimburse Sellers, Seller Indemnitees and their respective affiliates for, all reasonable and documented out-of-pocket costs and expenses incurred by Sellers or Seller Indemnitees in enforcing any of their rights under the Vitro Guaranty, including reasonable and documented out-of-pocket attorneys’ fees and expenses and costs of enforcement at law or in equity.


14.    MISCELLANEOUS.


14.1     Entire Agreement; Waivers .

14.1.1    This Agreement and the other Transaction Documents, together with the Confidentiality Agreement, constitute the sole and entire agreement among the Parties pertaining to the subject matter hereof and supersede all prior and contemporaneous


[NEWYORK 3251393_44]



agreements, understandings, negotiations and discussions, whether oral or written, of the Parties with respect to such subject matter.

14.1.2    No waiver of any provision of this Agreement will be deemed or will constitute a waiver of any other provision hereof (whether or not similar), will constitute a continuing waiver unless otherwise expressly provided nor will be effective unless in writing and executed by the Party making such waiver. No waiver by any Party of any breach of this Agreement shall operate or be construed as a waiver of any preceding or subsequent breach, whether of a similar or different character, unless expressly set forth in such written waiver. Neither any course of conduct or failure or delay of any Party in exercising or enforcing any right, remedy or power hereunder shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy or power hereunder, or any abandonment or discontinuance of steps to enforce such right, remedy or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right, remedy or power.

14.2     Amendment or Modification . The Parties may amend or modify this Agreement only by a written instrument executed by each of the Parties. Notwithstanding anything to the contrary contained herein, none of this Section 14.2 , Sections 11.2 ( Waiver of Jury Trial ), 14.1 ( Entire Agreement; Waivers ), 14.11 ( Specific Performance ), 14.12.1 ( No Third-Party Beneficiaries; No Recourse Against Third Parties ) and 14.15 ( Financing-Related Provisions ) may be amended, modified, waived or terminated in a manner that impacts or is adverse in any respect to the Financing Sources other than Vitro and Vitro Assets Corp. without the prior written consent of the Financing Sources other than Vitro and Vitro Assets Corp.

14.3     Severability . Except as provided in Section 7.10.7 , in the event that any provision hereof is held by any Governmental Authority of competent jurisdiction to be invalid or unenforceable in any respect, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible, in a mutually acceptable manner, in order that the Transactions be consummated as originally contemplated to the fullest extent possible. The provisions hereof are severable, and in the event any provision hereof should be held invalid, illegal or unenforceable in any respect, it will not invalidate, render unenforceable or otherwise affect any other provision hereof.

14.4     Successors and Assigns . Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned or delegated, in whole or in part, by either Party without the prior written consent of the other Party, and any attempted assignment or delegation without consent shall be null and void and of no force and effect. Notwithstanding the preceding sentence, Buyers may, without the prior written consent of Sellers, assign their rights under this Agreement, in whole or in part, to one or more of their Affiliates; provided , however , that no such assignment shall relieve any Buyer of its respective obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the Parties and their respective successors and permitted assigns.

14.5     Notices . Any notices or other communications required or permitted hereunder will be deemed to have been properly given and delivered if in writing by such Party or its legal representative and (x) delivered personally against receipt, (y) sent by confirmed facsimile or






[NEWYORK 3251393_44]


email (as a PDF file) or (z) sent by an overnight courier service recognized in the United States and guaranteeing overnight delivery, in each case if delivered or transmitted before 5:00 p.m. Central Time on a Business Day, otherwise on the next Business Day. Such notices or other communications must be sent to each respective Party at the address, email address or facsimile number set forth below:

If to any Seller, LKQ or, prior to the Closing, the Company, to:
c/o LKQ Corporation                                            500 West Madison Street, Suite 2800                                    Chicago, IL 60661                                        Attention: General Counsel                                    Facsimile: +1 (312) 207-1529
With a copy to (which shall not constitute notice):
K&L Gates LLP                                            70 West Madison Street, Suite 3100                                    Chicago, IL 60602                                        Attention: J. Craig Walker                                    Facsimile: +1 (312) 827-8179                                    Email: craig.walker@klgates.com
If to any Buyer or, after the Closing, the Company, to:
Vitro, S.A.B. de C.V.                                            Av. Ricardo Margain Zozaya #400                                    Col. Valle del Campestre                                        San Pedro Garza García                                        Nuevo León, México 66265                                    Facsimile: + 52 (81) 8863-1515                                    Email: JArechavaleta@vitro.com & rmaiz@vitro.com                    Attention: Javier Arechavaleta Santos and Ricardo Maiz
With a copy to (which shall not constitute notice):
Cleary Gottlieb Steen & Hamilton LLP                                One Liberty Plaza                                            New York, NY 10006                                        Facsimile: + 1 (212) 225-3999                                    Email: ckordula@cgsh.com                                    Attention: Chantal E. Kordula
Each of the Parties will be entitled to specify a different address, email address or facsimile number by delivering notice as aforesaid to each of the other Parties.
14.6     Public Announcements . Prior to Closing, no Party will issue or make any report, statement or release to the public (including, before Closing, the employees, customers and



[NEWYORK 3251393_44]



suppliers of the Company or the Company Subsidiaries) with respect to this Agreement or the Transactions without the consent of the other Party, which consent, in either case, will not be unreasonably withheld, conditioned or delayed (it being understood that Buyers’ consent to the disclosure of this Agreement or the Transactions to any Person for which Sellers request consent pursuant to Section 7.2.3 ), except as such release or announcement may be required by any Legal Requirement or the rules or regulations of any stock exchange or applicable Governmental Authority to which the relevant Party is subject, in which case the Party required to make the release or announcement shall provide the other Party reasonable time to comment on such release or announcement in advance of such issuance and shall reasonably consider in good faith any such comments, it being understood that the final form and content of any such release or announcement, to the extent so required, shall be at the final discretion of the disclosing Party. If any Party is unable to obtain, after reasonable effort, the approval of its public report, statement or release from the other Parties and such report, statement or release is, in the opinion of legal counsel to such Party, required by any Legal Requirement in order to discharge such Party’s disclosure obligations, then such Party may make or issue the legally required report, statement or release and promptly furnish the other Parties with a copy thereof.

14.7     Headings . Section and subsection headings are not to be considered part of this Agreement, are included solely for convenience, are not intended to be full or accurate descriptions of the content thereof, are not intended to define, limit or describe the scope or intent of this Agreement and will not affect the construction, meaning or interpretation of this Agreement.

14.8     Disclosure . Any item listed or referred to in any Schedule pursuant to any Section of this Agreement will be deemed to have been listed in or incorporated by reference into any other Schedule to the extent that the applicability of the information disclosed to such other representation and warranty or Schedule is reasonably apparent on the face of the Schedule. The headings, if any, of the individual sections of each of the Schedules are inserted for convenience only and will not be deemed to constitute a part thereof or a part of the Schedules. The inclusion of an item in the Schedules as an exception to a representation or warranty will not be deemed an admission or acknowledgment, in and of itself and solely by virtue of the inclusion of such information in the Schedules, that such information is required to be listed in the Schedules or that such item (or any non-disclosed item or information of comparable or greater significance) represents a material exception or fact, event or circumstance, that such item has had, or is excepted to result in, a Material Adverse Effect, or that such item actually constitutes noncompliance with, or a violation of, any Legal Requirement or Contractual Obligation or other topic to which such disclosure is applicable.

14.9     Counterpart and Electronic Signatures . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which, when taken together, shall be deemed to be one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile, e-mail or other electronic imaging means will be effective as delivery of a manually executed counterpart of this Agreement.

14.10     Governing Law . Subject to Section 3.4 and Section 14.15 , this Agreement and the Transactions, and any claim, controversy, dispute or Action arising out of or in connection



[NEWYORK 3251393_44]




with this Agreement or the negotiation, execution, performance, non-performance, interpretation, termination or construction hereof, will be interpreted, construed and governed by, and enforced in accordance with, the laws of the State of Delaware.


14.11     Specific Performance . Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached or violated. Accordingly, each of the Parties agrees that, without posting bond or other undertaking, the other Parties will be entitled to an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof, without the necessity of proving the inadequacy of money damages as a remedy and without bond or other security being required, in addition to any other remedy to which it may be entitled, at law or in equity, it being agreed that remedies hereunder are cumulative. Each of the Parties hereby acknowledges and agrees that it may be difficult to prove damages with reasonable certainty, that it may be difficult to procure suitable substitute performance and that injunctive relief and/or specific performance will not cause an undue hardship to the Parties. Each of the Parties hereby further acknowledges and agrees that the existence of any other remedy contemplated by this Agreement does not diminish the availability of injunctive relief or specific performance. Each Party further agrees that, in the event of any Action for injunctive relief or specific performance, it will not assert the defense that a remedy at law would be adequate, that the Party seeking such relief would not be irreparably harmed absent such relief, or that specific performance or injunctive relief should not be available on the grounds that money damages are adequate or any other grounds. In no event shall Sellers be entitled to seek the remedy of specific performance of this Agreement against the Financing Sources other than Vitro or Vitro Assets Corp.


14.12     No Third-Party Beneficiaries; No Recourse Against Third Parties .


14.12.1    This Agreement is for the sole benefit of the Parties and their successors and permitted assigns, and nothing express or implied herein will give to or impose on, or be construed to give to or impose on, any Person or labor organization, other than to such Parties and to such successors and permitted assigns, any legal or equitable rights, benefits or remedies or any Liabilities or obligations, other than (i) as set forth in Sections 7.6 , 7.8 and 10 ; (ii) solely with respect to the Financing Sources other than Vitro or Vitro Assets Corp., as set forth in Sections 14.1 , 14.2 , 14.11 , 14.12.1 and 14.15 ; and (iii) the Persons benefitted by Sections 14.12.2 , 14.12.3 and 14.14 , respectively. Each of the Persons described in clauses (i) and (ii) of the immediately preceding sentence is and shall be an intended third party beneficiary with respect to the applicable Section(s) specified in clauses (i) and (ii) of the immediately preceding sentence and may enforce this Agreement with respect to such Section(s).

14.12.2    Buyers will not, and will not cause or permit any controlled Affiliate thereof to, (i) assert any claim of any nature whatsoever arising under or relating to this Agreement, the negotiation thereof or its subject matter, or the Transactions, against any Person other than the Company, LKQ and Sellers (and against the Company, LKQ and Sellers only pursuant to the terms and conditions of this Agreement), including against any of the Company’s, LKQ’s or Sellers’ respective past, present or future direct or


[NEWYORK 3251393_44]



indirect equityholders, or any partners, members, stockholders, controlling persons, directors, officers, employees, incorporators, managers, agents, representatives, or other Affiliates of the Company, LKQ or Sellers (or any Affiliate of any of the foregoing) or the heirs, executors, administrators, estates, successors or assigns of any of the foregoing (each a “ Nonparty Seller Affiliate ”) or (ii) without limiting the generality of clause (i), hold or attempt to hold any Nonparty Seller Affiliate liable for any actual or alleged inaccuracies, misstatements or omissions with respect to any information or materials of any kind furnished by the Company, LKQ, Sellers or any Nonparty Seller Affiliate, or their respective representatives or agents, concerning the Business, the Company, the Company Subsidiaries, LKQ, Sellers, this Agreement or the Transactions.

14.12.3    Sellers will not, and will not cause or permit any controlled Affiliate thereof to, (i) assert any claim of any nature whatsoever arising under or relating to this Agreement, the negotiation thereof or its subject matter, the Transactions, the Financing, or the performance of services by the Financing Sources, against any Person other than Buyers, Vitro or Vitro Assets Corp. (and against Buyers, Vitro or Vitro Assets Corp. only pursuant to the terms and conditions of this Agreement), including (A) against any of Buyers’, Vitro’s or Vitro Asset Corp.’s past, present or future direct or indirect equityholders, or any partners, members, stockholders, controlling persons, directors, officers, employees, incorporators, managers, agents, representatives, or other Affiliates of Buyers, Vitro or Vitro Assets Corp. (or any of their Affiliates) or the heirs, executors, administrators, estates, successors or assigns of any of the foregoing (each a “ Nonparty Buyer Affiliate ” and collectively, with each Nonparty Seller Affiliate, the “ Nonparty Affiliates ”) and (B) the Financing Sources other than Vitro or Vitro Assets Corp., or (ii) without limiting the generality of clause (i), hold or attempt to hold any Nonparty Buyer Affiliate liable for any actual or alleged inaccuracies, misstatements or omissions with respect to any information or materials of any kind furnished by Buyers, Vitro, Vitro Assets Corp. or any Nonparty Buyer Affiliate, or their respective representatives or agents, concerning Buyers, Vitro or Vitro Assets Corp., this Agreement, the Transactions or the Debt Financing.

14.12.4    It is expressly acknowledged, understood and agreed that nothing herein is intended to, does or will constitute an amendment to or establishment of any employee benefit or other plan.

14.13     Negotiation of Agreement; Expenses . Each of the Parties acknowledges and agrees that it has been represented by independent counsel of its choice throughout all negotiations that have preceded the execution of this Agreement and that it has executed the same with consent and upon the advice of said independent counsel. Each Party and its counsel cooperated in the drafting and preparation of this Agreement and the documents referred to herein, and none shall be construed more strictly against any Party. Whether or not the Transactions are consummated, except as otherwise specifically provided for in this Agreement, each Party will assume, bear and pay all costs, expenses and fees (including legal and accounting fees and expenses) incurred by such Party in connection with the preparation, negotiation, execution and performance of this Agreement and the other Transaction Documents and the consummation of the Transactions; provided that if the Closing occurs, all such costs, expenses




[NEWYORK 3251393_44]




and fees of the Company and the Company Subsidiaries (incurred through the Closing) shall be considered Transaction Expenses.


14.14     Acknowledgement . NOTWITHSTANDING ANYTHING TO THE CONTRARY EXPRESS OR IMPLIED IN THIS AGREEMENT, BUYERS ACKNOWLEDGE AND AGREE THAT: (i) THEY HAVE CONDUCTED, TO THEIR SATISFACTION, AN INDEPENDENT INVESTIGATION AND VERIFICATION OF THE CONDITION (FINANCIAL AND OTHERWISE), RESULTS OF OPERATIONS, ASSETS, LIABILITIES, PROPERTIES AND PROJECTED OPERATIONS OF THE BUSINESS, THE COMPANY AND THE COMPANY SUBSIDIARIES AND, IN MAKING THEIR DETERMINATION TO ENTER INTO THIS AGREEMENT AND CONSUMMATE THE TRANSACTIONS, IT IS RELYING ONLY ON THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS EXPRESSLY AND SPECIFICALLY SET FORTH IN SECTION 4 AND SECTION 5 AND IN THE CERTIFICATES REQUIRED TO BE DELIVERED BY THE COMPANY AND SELLERS HEREUNDER IN CONNECTION WITH THE CLOSING AND THE COVENANTS OF THE COMPANY AND SELLERS EXPRESSLY AND SPECIFICALLY SET FORTH IN SECTION 7 ; (ii) (a) NONE OF THE COMPANY OR ANY SELLER NOR ANY OF THE NONPARTY SELLER AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE, AND BUYERS ARE NOT RELYING ON, ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT, EXPRESS OR IMPLIED, WITH RESPECT TO THE BUSINESS, THE COMPANY, THE COMPANY SUBSIDIARIES, SELLERS THE SUBJECT MATTER OF THIS AGREEMENT OR THE TRANSACTIONS, OR THE ACCURACY OR COMPLETENESS OF ANY INFORMATION OR MATERIALS REGARDING THE BUSINESS, THE COMPANY, THE COMPANY SUBSIDIARIES, SELLERS, OR THE SUBJECT MATTER OF THIS AGREEMENT OR THE TRANSACTIONS, THAT HAVE BEEN FURNISHED OR MADE AVAILABLE TO BUYERS OR THEIR REPRESENTATIVES OR ANY OTHER PERSON, OTHER THAN THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS THAT ARE EXPRESSLY AND SPECIFICALLY SET FORTH IN SECTION 4 AND; SECTION 5 AND IN THE CERTIFICATES REQUIRED TO BE DELIVERED BY THE COMPANY AND SELLERS HEREUNDER IN CONNECTION WITH THE CLOSING AND THE COVENANTS OF THE COMPANY AND SELLERS EXPRESSLY AND SPECIFICALLY SET FORTH IN SECTION 7 AND (b)  NONE OF THE COMPANY, ANY SELLER NOR ANY OF THE NONPARTY SELLER AFFILIATES SHALL HAVE OR BE SUBJECT TO ANY LIABILITY TO BUYERS OR ANY OTHER PERSON RESULTING FROM OR IN CONNECTION WITH THE DISSEMINATION TO BUYERS OR THEIR REPRESENTATIVES OR ANY OTHER PERSON OR THE USE BY BUYERS OR THEIR REPRESENTATIVES OR ANY OTHER PERSON OF ANY SUCH INFORMATION OR MATERIALS, INCLUDING ANY INFORMATION OR MATERIALS MADE AVAILABLE TO BUYERS OR THEIR REPRESENTATIVES IN ANY “DATA ROOM,” MANAGEMENT PRESENTATION OR IN ANY OTHER FORM IN CONNECTION WITH OR EXPECTATION OF THE ENTRY INTO THIS AGREEMENT OR THE TRANSACTIONS AND (iii) EXCEPT FOR THOSE INCLUDED IN THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS THAT ARE EXPRESSLY AND SPECIFICALLY SET FORTH IN SECTION 4 AND SECTION 5 AND IN THE CERTIFICATES REQUIRED TO BE DELIVERED BY THE COMPANY AND SELLERS HEREUNDER IN CONNECTION WITH THE CLOSING, ALL OTHER



[NEWYORK 3251393_44]




REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESS OR IMPLIED (INCLUDING ANY RELATING TO THE FUTURE OR HISTORICAL CONDITION (FINANCIAL OR OTHERWISE), RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OF THE BUSINESS, THE COMPANY, THE COMPANY SUBSIDIARIES OR THE SUBJECT MATTER OF THIS AGREEMENT OR THE TRANSACTIONS) ARE SPECIFICALLY DISCLAIMED BY THE COMPANY AND SELLERS AND HAVE NOT BEEN AND ARE NOT BEING RELIED UPON BY BUYERS OR ANY OF THEIR REPRESENTATIVES OR AFFILIATES.

14.15     Financing Related Provisions . Notwithstanding anything to the contrary contained herein, each of the Parties agrees (i) that any claim, cross-claim, suit, action or proceeding of any kind or description, whether in law or in equity, whether in contract or in tort or otherwise, against any Financing Sources (other than Vitro or Vitro Assets Corp.) that arises out of or relates to this Agreement, any related documentation or the transactions contemplated hereby or thereby, including any dispute arising out of or relating in any way to the Debt Documents, the Debt Financing or the performance of services thereunder shall be subject to the exclusive jurisdiction of a state or federal court sitting in the Borough of Manhattan within the City of New York, New York, and the appellate courts thereof; (ii) not to bring, or permit any of their Affiliates or Representatives to bring, or support anyone else in bringing any such claim, suit, action or proceeding in any court other than a state or federal court sitting in the Borough of Manhattan within the City of New York, New York; (iii) that service of process, summons, notice or document by registered mail addressed to it at its address provided in Section 14.5 shall be effective service of process against it for any such action brought in any such court; (iv) to waive and hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of, and the defense of an inconvenient forum to the maintenance of, any such action in any such court; (v) that a final judgment in any such action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law; (vi) that any such action shall be governed by, and construed in accordance with, the laws of the State of New York; and (vii) TO IRREVOCABLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING.

[Remainder of page intentionally left blank; Signature pages follows]









[NEWYORK 3251393_44]



IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have caused this Agreement to be executed, as of the date first above written by their respective officers thereunto duly authorized.


BUYERS:

VITRO AUTOMOTIVE GLASS, LLC
By: /s/ Baldomero Manuel Gardea de la Fuente
Name: Baldomero Manuel Gardea de la Fuente
Title:
 
By: /s/ Ricardo Jose Maiz Rodriguez
Name: Ricardo Jose Maiz Rodriguez
Title:
 
 
VIMEXICO, S.A. DE C.V.
 
By: /s/ Baldomero Manuel Gardea de la Fuente
Name: Baldomero Manuel Gardea de la Fuente
Title:
 
By: /s/ Ricardo Jose Maiz Rodriguez
Name: Ricardo Jose Maiz Rodriguez
Title:




[ Signature Page to the Stock and Asset Purchase Agreement ]
[NEWYORK 3251393_44]



SELLER:

LKQ PGW HOLDINGS LLC

By: /s/ Jeffrey Gronbeck
Name: Jeffrey Gronbeck
Title: Assistant Secretary

 
PITTSBURGH GLASS WORKS, LLC
By: /s/ Jeffrey Gronbeck
Name: Jeffrey Gronbeck
Title: SVP, Chief Financial Officer and Secretary
 
PITTSBURGH GLASS WORKS, ULC
By: /s/ Jeffrey Gronbeck
Name: Jeffrey Gronbeck
Title: CFO and Secretary

 
KPGW EUROPEAN HOLDCO, LLC
By: /s/ Jeffrey Gronbeck
Name: Jeffrey Gronbeck
Title: CFO and Secretary
 

COMPANY:

PGW HOLDINGS, LLC

By: /s/ Jeffrey Gronbeck
Name: Jeffrey Gronbeck
Title: CFO and Secretary







[ Signature Page to the Stock and Asset Purchase Agreement ]
[NEWYORK 3251393_44]





LKQ:

LKQ CORPORATION, solely for the purposes of Section 13

By: /s/ Walter P. Hanley
Name: Walter P. Hanley
Title: Senior Vice President









[ Signature Page to the Stock and Asset Purchase Agreement ]
[NEWYORK 3251393_44]




VITRO:

VITRO, S.A.B DE C.V., solely for the purposes of Section 13

 
By: /s/ Claudio Luis Del Valle Cabello
Name: Claudio Luis Del Valle Cabello
Title:
 
By: /s/ Javier Arechavaleta Santos
Name: Javier Arechavaleta Santos
Title:



VITRO ASSETS CORP.:

VITRO ASSETS CORP., solely for the purposes of Section 13


 
By: /s/ Baldomero Manuel Gardea de la Fuente
Name: Baldomero Manuel Gardea de la Fuente
Title:
 
 
By: /s/ Ricardo Jose Maiz Rodriguez
Name: Ricardo Jose Maiz Rodriguez
Title:



[ Signature Page to the Stock and Asset Purchase Agreement ]
[NEWYORK 3251393_44]

Exhibit 12.1



LKQ CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except ratios)
(Unaudited)

 
 
Year Ended December 31,
 
 
2012
 
2013
 
2014
 
2015
 
2016
Income from continuing operations before provision for income taxes
 
$
409,167

 
$
475,827

 
$
587,888

 
$
649,030

 
$
677,281

Fixed charges
 
71,983

 
100,190

 
124,670

 
124,739

 
176,414

Amortization of capitalized interest, net of interest capitalized
 
(57
)
 
56

 
(50
)
 
64

 
(423
)
Earnings available for fixed charges
 
$
481,093

 
$
576,073

 
$
712,508

 
$
773,833

 
$
853,272

 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
Interest expense, including amortization of debt issuance costs
 
$
31,429

 
$
51,184

 
$
64,542

 
$
57,860

 
$
88,263

Capitalized interest
 
296

 
130

 
264

 
166

 
824

Portion of rental expense representative of interest
 
40,258

 
48,876

 
59,864

 
66,713

 
87,327

Total fixed charges
 
$
71,983

 
$
100,190

 
$
124,670

 
$
124,739

 
$
176,414

Ratio of earnings to fixed charges
 
6.7

 
5.7

 
5.7

 
6.2

 
4.8




Exhibit 21.1
LIST OF SUBSIDIARIES OF LKQ CORPORATION (as of December 31, 2016)



Subsidiary
 
Jurisdiction
 
Assumed Names
 
 
 
 
 
U.S. Enitites
 
 
 
 
A&A Auto Parts Stores, Inc.
 
Pennsylvania
 
 
Akron Airport Properties, Inc.
 
Ohio
 
 
American Recycling International, Inc.
 
California
 
Pick A Part Auto Dismantling
A-Reliable Auto Parts & Wreckers, Inc.
 
Illinois
 
LKQ Self Service Auto Parts-Rockford; LKQ Heavy Duty Truck ARSCO; LKQ Heavy Duty Truck Core; LKQ Pick Your Part Rockford
Arrow Speed Acquisition LLC
 
Delaware
 
 
Belletech Corporation (40% stake)
 
Ohio
 
 
Budget Auto Parts U-Pull-It, Inc.
 
Louisiana
 
 
City Auto Parts of Durham, Inc.
 
North Carolina
 
LKQ Self Service Auto Parts-Durham
DriverFx.com, Inc.
 
Delaware
 
 
Goodmark Motors, LLC (49.9% stake)
 
Delaware
 
 
Greenleaf Auto Recyclers, LLC
 
Delaware
 
Saturn Wheel Company; Heartland Aluminum; Profromance Powertrain; LKQ Heavy Duty Truck-Carolina; Potomac German Mid-Atlantic; Greenleaf Quality Recycled Auto Parts; LKQ West Florida; LKQ North Florida
KAIR IL, LLC
 
Illinois
 
 
KAO Logistics, Inc
 
Pennsylvania
 
 
KAO Warehouse, Inc.
 
Delaware
 
 
Keystone Automotive Industries, Inc.
 
California
 
Transwheel, Coast to Coast International; LKQ of Cleveland; Keystone Automotive-San Francisco Bay Area; Chrome Enhancements
Keystone Automotive Operations, Inc.
 
Pennsylvania
 
 
Keystone Automotive Operations of Canada, Inc.
 
Delaware
 
 
KPGW Canadian Holdco, LLC
 
Delaware
 
 
KPGW European Holdco, LLC
 
Delaware
 
 
Lakefront Capital Holdings, LLC
 
California
 
 
LKQ 1st Choice Auto Parts, LLC
 
Oklahoma
 
 
LKQ 250 Auto, Inc.
 
Ohio
 
 
LKQ A&R Auto Parts, Inc.
 
South Carolina
 
 
LKQ All Models Corp.
 
Arizona
 
Wholesale Auto Recyclers; Cars ‘n More; LKQ of Arizona
LKQ Apex Auto Parts, Inc.
 
Oklahoma
 
LKQ Self Service Auto Parts - Oklahoma City
LKQ Atlanta, L.P.
 
Delaware
 
LKQ Carolina; LKQ Parts Outlet-Atlanta
LKQ Auto Parts of Central California, Inc.
 
California
 
LKQ Valley Truck Parts; LKQ Specialized Auto Parts; LKQ ACME Truck Parts; All Engine Distributing
LKQ Auto Parts of Memphis, Inc.
 
Arkansas
 
LKQ of Tennessee; LKQ Preferred
LKQ Auto Parts of North Texas, Inc.
 
Delaware
 
 
LKQ Auto Parts of North Texas, L.P.
 
Delaware
 
LKQ Auto Parts of Central Texas; LKQ Self Service Auto Parts-Austin
LKQ Auto Parts of Utah, LLC
 
Utah
 
 
LKQ Best Automotive Corp.
 
Delaware
 
LKQ Auto Parts of South Texas; A-1 Auto Salvage Pick & Pull; The Engine & Transmission Store; LKQ Automotive Core Services; LKQ International Sales; LKQ of El Paso




Subsidiary
 
Jurisdiction
 
Assumed Names
LKQ Brad’s Auto & Truck Parts, Inc.
 
Oregon
 
 
LKQ Broadway Auto Parts, Inc.
 
New York
 
LKQ Buffalo; LKQ Self Service Auto Parts-Buffalo
LKQ Corporation
 
Delaware
 
 
LKQ Delaware LLP
 
Delaware
 
 
LKQ Finance 1 LLC
 
Delaware
 
 
LKQ Finance 2 LLC
 
Delaware
 
 
LKQ Foster Auto Parts Salem, Inc.
 
Oregon
 
Foster Auto Parts Salem
LKQ Foster Auto Parts Westside LLC
 
Oregon
 
 
LKQ Foster Auto Parts, Inc.
 
Oregon
 
LKQ U-Pull-It Auto Wrecking; U-Pull-It Auto Wrecking; LKQ Barger Auto Parts; LKQ KC Truck Parts-Inland Empire; LKQ KC Truck Parts-Western Washington; LKQ KC Truck Parts-Montana; LKQ Wholesale Truck Parts; LKQ of Eastern Idaho
LKQ Glass 1, LLC
 
Delaware
 
 
LKQ Glass 2 Inc.
 
Delaware
 
 
LKQ Gorham Auto Parts Corp.
 
Maine
 
 
LKQ Great Lakes Corp.
 
Indiana
 
LKQ Star Auto Parts; LKQ Chicago; LKQ Self Service Auto Parts-Milwaukee
LKQ Heavy Truck-Texas Best Diesel, L.P.
 
Texas
 
LKQ Fleet Solutions
LKQ Hunts Point Auto Parts Corp.
 
New York
 
Partsland USA; LKQ Auto Parts of Eastern Pennsylvania; LKQ Auto Parts
LKQ Lakenor Auto & Truck Salvage, Inc.
 
California
 
LKQ of Southern California; LKQ of Las Vegas; LKQ Parts Outlet-Los Angeles
LKQ Management Company
 
Delaware
 
 
LKQ Metro, Inc.
 
Illinois
 
 
LKQ Mid-America Auto Parts, Inc.
 
Kansas
 
Mabry Auto Salvage; LKQ of Oklahoma City; LKQ of NW Arkansas; LKQ Heavy Duty Truck-Kansas; LKQ Four States
LKQ Midwest Auto Parts Corp.
 
Nebraska
 
Midwest Foreign Auto; LKQ Midwest Auto; LKQ Auto Parts of Lincoln
LKQ Minnesota, Inc.
 
Minnesota
 
LKQ Albert Lea
LKQ of Indiana, Inc.
 
Indiana
 
LKQ Self Service Auto Parts-South Bend; LKQ Kentuckiana
LKQ of Michigan, Inc.
 
Michigan
 
 
LKQ of Nevada, Inc.
 
Nevada
 
 
LKQ of Tennessee, Inc.
 
Tennessee
 
 
LKQ Online Corp.
 
Delaware
 
 
LKQ Penn-Mar, Inc.
 
Pennsylvania
 
LKQ Thruway Auto Parts; LKQ Venice Auto Parts; LKQ Triple Nickel Trucks
LKQ PGW Holdings, LLC
 
Delaware
 
 
LKQ Pick Your Part Southeast, LLC
 
Delaware
 
LKQ Self Service Auto Parts-Orlando; LKQ Pick Your Part
LKQ Raleigh Auto Parts Corp.
 
North Carolina
 
LKQ Pick Your Part
LKQ Receivables Finance Company, LLC
 
Delaware
 
 
LKQ Route 16 Used Auto Parts, Inc.
 
Massachusetts
 
Diversified Marketing Solutions; LKQ Pick Your Part; LKQ Car World Auto Parts
LKQ Salisbury, Inc.
 
North Carolina
 
LKQ of Carolina; LKQ Richmond; LKQ East Carolina; LKQ Self Service East NC ; LKQ Self Service Auto Parts-Charlotte; LKQ Pick Your Part; LKQ Heavy Duty Truck Charlotte




Subsidiary
 
Jurisdiction
 
Assumed Names
LKQ Savannah, Inc.
 
Georgia
 
LKQ Self Service Auto Parts-Savannah; LKQ Pick Your Part
LKQ Self Service Auto Parts-Holland, Inc.
 
Michigan
 
LKQ Pick Your Part
LKQ Self Service Auto Parts-Kalamazoo, Inc.
 
Michigan
 
LKQ Self Service Auto Parts-Grand Rapids; LKQ Pick Your Part
LKQ Self Service Auto Parts-Memphis LLC
 
Tennessee
 
LKQ Pick Your Part
LKQ Self Service Auto Parts-Tulsa, Inc.
 
Oklahoma
 
LKQ Pick Your Part
LKQ Smart Parts, Inc.
 
Delaware
 
LKQ Viking Auto Salvage
LKQ Southeast, Inc.
 
Delaware
 
LKQ Fort Myers; LKQ Heavy Truck-Tampa; LKQ Pick Your Part; LKQ Gulf Coast; LKQ Plunks Truck Parts & Equipment - West Monroe
LKQ Southwick LLC
 
Massachusetts
 
 
LKQ Taiwan Holding Company
 
Illinois
 
 
LKQ Tire & Recycling, Inc.
 
Delaware
 
 
LKQ Trading Company
 
Delaware
 
 
LKQ TriplettASAP, Inc.
 
Ohio
 
LKQ Heavy Truck-Goody's; LKQ Pittsburgh; LKQ Pick Your Part
LKQ U-Pull-It Auto Damascus, Inc.
 
Oregon
 
LKQ U-Pull-It Damascus
LKQ U-Pull-It Tigard, Inc.
 
Oregon
 
 
LKQ West Michigan Auto Parts, Inc.
 
Michigan
 
 
North American ATK Corporation
 
California
 
 
PGW Auto Glass LLC
 
Delaware
 
 
PGW Holdings, LLC
 
Delaware
 
 
Pick-Your-Part Auto Wrecking
 
California
 
LKQ Pick A Part-San Bernardino; LKQ Midnight Auto & Truck Recyclers; LKQ Pick A Part-Hesperia; LKQ Desert High Truck & Auto Recyclers; LKQ Pick A Part-Riverside; LKQ Hillside Truck & Auto Recyclers; LKQ Pick Your Part Chicago Heights
Pittsburgh Glass Works, LLC
 
Delaware
 
 
Potomac German Auto, Inc.
 
Maryland
 
LKQ Norfolk; LKQ Heavy Truck-Maryland
Pull-N-Save Auto Parts, LLC
 
Colorado
 
LKQ Pull-N-Save Auto Parts of Aurora LLC; LKQ of Colorado; LKQ Self Service Auto Parts-Denver; LKQ Western Truck Parts
Redding Auto Center, Inc.
 
California
 
LKQ Auto Parts of Northern California; LKQ Reno; LKQ Specialized Parts Planet; LKQ ACME Truck Parts; LKQ Auto Sales of Rancho Cordova
Scrap Processors, LLC
 
Illinois
 
 
Supreme Auto Parts, Inc.
 
Pennsylvania
 
 
Taylor's Executive Radiator Service, Inc.
 
Maryland
 
 
U-Pull-It, Inc.
 
Illinois
 
LKQ PickYour Part Blue Island
U-Pull-It, North, LLC
 
Illinois
 
LKQ Pick Your Part





Subsidiary
 
Jurisdiction
 
Assumed Names
 
 
 
 
 
Foreign Entities
 
 
 
 
1323352 Alberta ULC
 
Alberta
 
 
1323410 Alberta ULC
 
Alberta
 
 
2015 Automaterialen B.V.
 
Netherlands
 
 
9002-1282 Quebec, Inc.
 
Quebec
 
 
Additional E. Car Parts Limited
 
Ireland
 
 
Ageres B.V.
 
Netherlands
 
 
Andrew Page 1917 Limited
 
England & Wales
 
 
AP Logistics Belgie NV
 
Belgium
 
 
AP Logistics B.V.
 
Netherlands
 
 
APS B.V.
 
Netherlands
 
 
APS Autobanden B.V. (50% stake)
 
Netherlands
 
 
Arleigh Group Limited
 
England & Wales
 
 
Arleigh International Limited
 
England & Wales
 
 
ATR GmbH (10% stake)
 
Germany
 
 
Atracco AB
 
Sweden
 
 
Atracco AS
 
Norway
 
 
Atracco Auto AB
 
Sweden
 
 
Atracco Group AB
 
Sweden
 
 
Auto Electra Naaldwijk B.V.
 
Netherlands
 
 
Auto Kelly a.s.
 
Czech Republic
 
 
Auto Kelly Bulgaria EOOD
 
Bulgaria
 
 
Auto Kelly Slovakia s.r.o.
 
Slovakia
 
 
Automotive Data Services Limited
 
England & Wales
 
 
Auto-Onderdelen Centrale Middelburg B.V.
 
Netherlands
 
 
Autostop Leuven NV
 
Belgium
 
 
Auto Wessel B.V.
 
Netherlands
 
 
Auto Wessel Naarden B.V.
 
Netherlands
 
 
AVC Tyre Recycling Ltd. (33.33% stake)
 
England & Wales
 
 
Bertolotti S.p.A.
 
Italy
 
 
Car Parts 4 Less Limited
 
England & Wales
 
 
Cartal Rijsbergen Automotive B.V.
 
Netherlands
 
 
Centro Ricambi Rhiag S.r.l.
 
Italy
 
 
Cristal Laminadoo Templado S.A. de C.V. (50% stake)
 
Mexico
 
 
Cruiser B.V.
 
Netherlands
 
 
Distribuidora Hermanos Copher Internacional, SA
 
Guatemala
 
 
ECP France SAS
 
France
 
 




Subsidiary
 
Jurisdiction
 
Assumed Names
ELIT CZ, Spol s.r.o.
 
Czech Republic
 
 
Elit Group Ltd.
 
Switzerland
 
 
ELIT PL sp.zo.o.
 
Poland
 
 
ELIT Slovakia s.r.o.
 
Slovakia
 
 
ELIT Ukraine LLC
 
Ukraine
 
 
Era S.p.A.
 
Italy
 
 
Euro Car Parts Ireland Limited
 
Ireland
 
 
Euro Car Parts Limited
 
England & Wales
 
 
Euro Car Parts (Northern Ireland) Limited
 
Northern Ireland
 
 
Euro Garage Solutions Ltd
 
England & Wales
 
 
Fastighetsaktiebolaget Pistolvagen 4
 
Sweden
 
 
Harrems Tools B.V.
 
Netherlands
 
 
Harrems Tools N.V.
 
Belgium
 
 
Hartsant Crash Repair Bvba
 
Belgium
 
 
Havam Automotive B.V.
 
Netherlands
 
 
Heijl Automotive B.V.
 
Netherlands
 
 
Heuts Beheer B.V.
 
Netherlands
 
 
Heuts DHZ B.V.
 
Netherlands
 
 
Heuts Handel B.V.
 
Netherlands
 
 
Heuts Tilburg B.V.
 
Netherlands
 
 
HF Services B.V.
 
Netherlands
 
 
HF Services Bvba
 
Belgium
 
 
Intermotor B.V. (50% stake)
 
Netherlands
 
 
IPAR Industrial Partners B.V.
 
Netherlands
 
 
inSiamo Scarl (24.54% stake)
 
Italy
 
 
JCA Coatings Limited
 
England & Wales
 
 
Keystone Automotive de Mexico, Sociedad de Responsabilidad Limitada de Capital Variable
 
Mexico
 
 
Keystone Automotive Industries ON, Inc.
 
Canada (Federal)
 
 
Keystone Automotive Operations (India) Pvt. Ltd.
 
India
 
 
Knopf Automotive Do Brasil Industria E Distribuicao De Pecas Automotivas Ltda.,
 
Brazil
 
 
Knopf Automotive Korkatolt Felelossegu Turasug
 
Hungary
 
 
Kuhne Nederland B.V.
 
Netherlands
 
 
Láng Kft.
 
Hungary
 
 
LKQ Canada Auto Parts Inc.
 
Canada (Federal)
 
 
LKQ Euro Limited
 
Ireland
 
 
LKQ Euro Limited
 
England & Wales
 
 
LKQ Italia S.r.l.
 
Italy
 
 
LKQ Italia Bondco S.p.A.
 
Italy
 
 
LKQ Jersey Finance 1 Ltd.
 
Jersey
 
 




Subsidiary
 
Jurisdiction
 
Assumed Names
LKQ Jersey Finance 2 Ltd.
 
Jersey
 
 
LKQ Jersey 1 Ltd.
 
Jersey
 
 
LKQ Jersey 2 Ltd.
 
Jersey
 
 
LKQ Netherlands B.V.
 
Netherlands
 
 
LKQ Ontario LP
 
Ontario
 
 
LKQ UK Finance 1 LLP
 
England & Wales
 
 
LKQ UK Finance 2 LLP
 
England & Wales
 
 
Marine Mart Limited
 
England & Wales
 
 
Markesdemo AB (2.85% stake)
 
Sweden
 
 
Mekonomen AB (26.5% stake)
 
Sweden
 
 
Midland Chandlers Limited
 
England & Wales
 
 
Nipparts B.V.
 
Netherlands
 
 
Nipparts Deutschland GmbH
 
Germany
 
 
Nova Leisure Limited
 
England & Wales
 
 
NTP/Stag Canada Inc.
 
Canada (Federal)
 
 
Obdo Forvaltning AB
 
Sweden
 
 
Orebro Bideontering AB
 
Sweden
 
 
Pala Holding, B.V.
 
Netherlands
 
 
PGW Technik
 
Germany
 
 
Pittsburgh Glass Works (Germany) GmbH
 
Germany
 
 
Pittsburgh Glass Works Hong Kong Limited
 
Hong Kong
 
 
Pittsburgh Glass Works (Poland) Sp.z.o.o.
 
Poland
 
 
Pittsburgh Glass Works S.a.r.l.
 
Luxembourg
 
 
Pittsburgh Glass Works, ULC
 
Nova Scotia
 
 
Primaparts Automaterialen B.V.
 
Netherlands
 
 
Recopart AB
 
Sweden
 
 
Recopart Holding AB
 
Sweden
 
 
Rhiag Engineering S.p.A.
 
Italy
 
 
Rhiag Group Ltd.
 
Switzerland
 
 
Rhiag-Inter Auto Parts Italia S.p.A.
 
Italy
 
 
Rhiag Services Slovakia s.r.o.
 
Slovakia
 
 
Rhino BidCo S.p.A.
 
Italy
 
 
Rijsbergen CarTAL Beheer B.V.
 
Netherlands
 
 
Sator Central Services B.V.
 
Netherlands
 
 
Sator Holding B.V.
 
Netherlands
 
 
S.C. ELIT Romania S.r.l.
 
Romania
 
 
Schaftenaar B.V.
 
Netherlands
 
 
Shandong PGW Jinjing Automotive Glass Co.
 
China
 
 
Signalen AB
 
Sweden
 
 
Signalen Bildemontering AB
 
Sweden
 
 
Slager Automaterialen B.V.
 
Netherlands
 
 




Subsidiary
 
Jurisdiction
 
Assumed Names
Stiching Autofirst Nederland B.V. (66.67% stake)
 
Netherlands
 
 
Thomassons.nu Grupp AB
 
Sweden
 
 
Tielman Automaterialen B.V.
 
Netherlands
 
 
Troms Bildelsenter AS
 
Norway
 
 
Van Heck & Co. B.V.
 
Netherlands
 
 
Van Heck Interpieces N.V.
 
Belgium
 
 
Van Heck Vastgoed B.V.
 
Netherlands
 
 
VEAM B.V.
 
Netherlands
 
 
Vége de Mexico S.A. de C.V.
 
Mexico
 
 
Vege-Motodis S.A. de C.V.
 
Mexico
 
 
Vhip Fr SAS
 
France
 
 
Widells Bilplat Eftr AB
 
Sweden
 
 
WJCM de Mexico, Sociedad de Responsabilidad Limitada de Capital Variable
 
Mexico
 
 





















Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




We consent to the incorporation by reference in Registration Statement Nos. 333-110149, 333-128151, and 333-174450 on Form S-8, Registration Statement No. 333-205562 on Form S-3, and Registration Statement Nos. 333-193585, 333-133911 and 333-160395 on Form S-4 of our reports dated February 27, 2017 , relating to the consolidated financial statements and financial statement schedule of LKQ Corporation and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s adoption of Accounting Standards Update No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”), and the effectiveness of LKQ Corporation and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of LKQ Corporation for the year ended December 31, 2016 .
 
 
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 27, 2017



Exhibit 31.1



CERTIFICATION
I, Robert L. Wagman, certify that:
1. I have reviewed this annual report on Form 10-K of LKQ Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 27, 2017
 
/s/ ROBERT L. WAGMAN
 
Robert L. Wagman
 
President and Chief Executive Officer
 

Exhibit 31.2



CERTIFICATION
I, Dominick Zarcone, certify that:
1. I have reviewed this annual report on Form 10-K of LKQ Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 27, 2017
 
/ S / DOMINICK ZARCONE
 
Dominick Zarcone
 
Executive Vice President and Chief Financial Officer
 

Exhibit 32.1



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of LKQ Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 27, 2017
 
 
/ S / ROBERT L. WAGMAN
 
Robert L. Wagman
 
President and Chief Executive Officer

Exhibit 32.2



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of LKQ Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, as Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 27, 2017
 
 
/ S / DOMINICK ZARCONE
 
Dominick Zarcone
 
Executive Vice President and Chief Financial Officer